Commonwealth Bank spends AU$904m on IT as H1 profit drops by AU$300m

The bank plans to be 'the best in digital'.
Written by Asha Barbaschow, Contributor

The Commonwealth Bank of Australia (CBA) has released its financial results for the first half of the year, with statutory net profit after tax reaching AU$4.6 billion for the six-month period.  

The figure is down AU$300 million from the bank's H1 2018 AU$4.9 billion profit.

For the half year ended December 31, 2018, CBA reported AU$12.4 billion operating income.

IT services expenses increased by AU$89 million to AU$904 million year on year. This was primarily due to a AU$50 million increase in amortisation of software assets, increased spend on resiliency projects, and lower vendor rebates received, the bank told shareholders on Wednesday.

CBA in June entered into an agreement with Austrac to end civil proceedings initiated in August 2017. The agreement sees the bank admitting to 53,750 breaches of the Anti-Money Laundering and Counter-Terrorism Financing Act (AML/CTF), which included failing to hand over 53,506 threshold transaction reports (TTRs) for cash transactions over AU$10,000 to the regulator through intelligent deposit machines (IDMs) for almost three years between November 2012 and September 2015; and not complying with its AML/CTF program across 778,370 transactions for a period of three years.

The terms of the agreement saw the bank pay AU$700 million -- of which AU$375 million was accounted for in H1 2018 and AU$325 million in H2 2018 -- along with Austrac's legal cost of AU$2.5 million, and the regulator's proceedings dismissed.

Investment spend in the first half of 2019 was listed as AU$676 million, 13 percent more than the corresponding period a year prior.

CBA said the increased investment was driven by elevated spending on risk and compliance projects to strengthen regulatory and compliance frameworks, specifically around AML/CTF, and to implement systems to satisfy regulatory obligations, including comprehensive credit reporting, the New Payments Platform, and ATM processing of new bank notes.

Read more: What is Australia's New Payments Platform?

The bank is moving out of the Banking Royal Commission with a strategy to be "the best in digital", which it said will be supported by stronger capabilities in operational risk and compliance, cost reduction, data and analytics, and innovation.

Under cost reduction, the bank said it is aiming for end-to-end digitisation, focusing on "a lower absolute cost base underpinned by simpler, more focused, and highly digitised businesses, with efficiencies supporting ongoing investment and innovation".

As of the end of December, the bank boasted 16.1 million customers, 6.7 million of which it considered active digital customers, producing 6.5 million digital logons per day.

Staff expenses increased during the half by AU$19 million, with the bank now boasting 48,000 staff members across 1,192 branches.

CBA in November sold off its South African arm, TymeDigital, to African Rainbow Capital, which it said resulted in a post-tax loss on sale of AU$113 million. The bank is accounting for a loss of AU$22 million in this reporting period, with the remaining AU$91 million accounted for in the previous period.

Through TymeDigital, CBA was working on a blockchain solution that was "actually going into market".

During the six-month period, the bank launched a "smart money" trial alongside Data61 that it said will help manage payments within Australia's National Disability Insurance Scheme (NDIS).

It followed CBA in August announcing the completion of the world's first bond delivered via blockchain, on behalf of its client, the World Bank.


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