Customer remediation costs are not the only consequence for the banks from their misconduct. As the latest Commonwealth Bank financial report reveals, changes to fees and charges are having a big impact as well, and they will be longer lasting.
Last week, the bank announced that operating income was down 4 per cent in the March quarter, compared with the average of the September and December quarters. That followed a 2 per cent fall in operating income in the December half.
The fall in revenue is due, in part, to the Better Customer Outcomes program, which is a mix of regulatory requirements and voluntary initiatives. It includes a change to the calculation of interest on credit cards, removal of ongoing wealth management service fees, everyday bank fee changes, overdrawn approval fee changes and the ATM fee removal.
On an annualised basis, these pricing changes are currently worth $415 million of income foregone. And they are ongoing.
In a note to clients, Macquarie Securities says it is downgrading its earnings forecast for the bank by about 5 per cent, “as a result of higher than expected remediation expenses in the near term and revenue challenges, predominantly relating to non-interest income, in the medium term.
Macquarie rates CBA stock ‘underperform’. It says that “on an underlying basis, revenue conditions remain challenging.”
On the remediation side, the bank made additional provisions of $714 million in the March quarter, adding to the $282 million of provisions it booked in the December half.
The latest provisions included $334 million for aligned advice remediation and program costs, $72 million for wealth customer remediation, $152 million for business banking customer remediation and $156 million for other program costs (including regulatory responses).
The bank says: “While these additional provisions are estimates that may change, the bank believes it has adequately provided for currently known banking and wealth customer remediation. The bank will continue to
The latest provisions take the total cost of the bank’s customer remediation program and regulatory update to $2.2 billion.
As a result of the March quarter provisions, unaudited cash profit for the quarter is down 28 per cent, compared with the average of the September and December quarters.
Taking the $714 million provision out of the equation, cash profit of $2.4 billion for the quarter was down 9 per cent on the average of the previous two quarters.
Arrears on personal loans, credit cards and home loans were all higher during the quarter. Home loan arrears (past due by 90 days or more) rose from 67 basis points in the December half to 71 bps in the March quarter.