Modernisation, regulation dent CBA profits

A surge in compliance-related expenses and unfavourable risk insurance claims weighed down the performance of the Commonwealth Bank of Australia’s wealth management business.

Chief executive Ian Narev said the bank had spent a “very significant amount of money” in the last 12 months implementing compliance and regulatory change programs related to the federal government’s Future of Financial Advice and Stronger Super reforms.

The bank’s wealth arm, which includes Colonial First State Global Asset Management, Colonial First State and CommInsure, reported a 9-per-cent increase in net profit after tax to $687 million for the year to June 30, 2013, despite a 9-per-cent hike in operating expenses.

Overall, the bank delivered a record $7.677-billion statutory net profit for the 2013 fiscal year, up 8 per cent on 2012.

Difficult market conditions for life and risk insurers saw CommInsure report an 8-per-cent drop in net profit after tax to $320 million for the year, however improved market conditions and strong growth in assets under management and administration boosted the performance of Colonial First State Global Asset Management and Colonial First State.

Colonial First State Global Asset Management reported a 21-per-cent increase in net profit to $313 million, off the back of a 9-per-cent average increase in funds under management to $160 billion.

Net inflows for the year were the highest in five years at $7 billion, driven by strong demand for cash products. However, funds management margins declined by three basis points, reflecting the institutional shift to lower margin products.

The bank’s platform administration and advice business, Colonial First State reported a 29-per-cent increase in net profit, as average funds under administration soared 13 per cent to $219.2 billion.

Colonial’s flagship FirstChoice and Custom Solutions platforms captured around 27 per cent of net market flows over the year. Platform net flows were $6 billion, due mainly to Custom Solutions, which hit $14 billion under administration.

Narev said growth in funds under administration was the “standout” feature of the wealth management result. Total funds under advice grew 23 per cent to $240 million.

The recent completion of the bank’s core banking modernisation program, which took six years in total and included the rollout of video conferencing facilities across CBA branches, according to Narev, would lead to greater customer satisfaction and continued improvements in revenue lines. In addition, he said the new technology would allow CBA customers in regional areas to have quick and convenient face-to-face access to advice on superannuation, investments and insurance.