Commonwealth Bank of Australia (CBA) slashed its annual dividend by more than half to the maximum payout allowed by regulators, even as bad loan provisions amid the coronavirus pandemic drove its annual cash profit below market expectations.
The payout by Australia's largest lender is expected to set the pace for other banks in the country, where dividends are closely watched as around 8% of the population manage their own retirement income.
Investing in stocks is popular with record low interest rates making bonds and cash savings unattractive.
CBA declared a final dividend of A$0.98 ($0.6988) per share, versus last year's A$2.31, given the regulatory order for banks to pay out less than half their profit.
Its cash profit from continuing operations fell 11% to A$7.30 billion in the year ended June, on bad loan provisions and lower credit card and personal loan activity.
That was below an average estimate of A$7.39 billion from four analysts polled by Reuters.
"We anticipate that lower credit growth and low interest rates will continue to put pressure on our revenue, requiring focus on performance, efficiency and capital allocation," CEO Matt Comyn said in a statement on Wednesday.
Australian banks are also facing challenges due to lockdowns hampering business and loan holiday extensions for struggling borrowers amid the pandemic.
About 195,000 of CBA's loan accounts, representing about 8% of home loans and 15% of business loans, and totaling A$62 billion have been deferred due to customer forbearance measures.
Australia's unemployment is expected to hit about 10% this year, raising the risk of defaults once the loan holidays end.
But the outlook is "not quite as bad as we'd first feared" Comyn said. "Clearly, the test is going to be how effectively we can make the orderly transition away from repayment deferrals."
CBA, which follows a different reporting calendar than its rivals, reported troublesome and impaired assets of A$8.71 billion at end-June, up from A$8.1 billion three months earlier.
CBA shares were 0.65% lower, in line with the broader market which was 0.41% weaker.
($1 = 1.4023 Australian dollars)