By Alice Uribe

SYDNEY--Commonwealth Bank of Australia will pay a final dividend, despite seeing its cash earnings slide partly due to a provision for the expected impacts of the ongoing coronavirus pandemic.

Cash earnings--the measure followed by analysts that strips out items including hedging volatility and losses or gains on asset sales--fell by 11% to 7.30 billion (US$5.21 billion) in the 12 months through June, which CBA said was largely due to higher Covid-19 loan impairment expense.

CBA's statutory net profit rose by 12% to A$9.63 billion, from A$8.57 billion the year before. The result included significant gains on the sale of businesses.

The bank, Australia's largest by market value and the country's biggest mortgage lender, on Wednesday said it would pay a final dividend of A$0.98 per share compared to A$2.31 last year, bringing the annual payout to A$2.98, an almost 31% decrease on last year.

The bank said its final dividend reflects Australian Prudential Regulation Authority's recently updated guidance that banks should retain at least 50% of earnings, adding that the payout ratio was 49.95% of second half statutory earnings.

"This represents a cautious approach to capital management and dividends as we head into a period of economic uncertainty," said CBA.

APRA in July gave shareholders a reprieve, advising that banks no longer needed to pause dividends, which was a softer stance than its April request that boards "seriously consider" suspending payments.

Other lenders including Australia & New Zealand Banking Group Ltd. and Westpac Banking Corp. reported large falls in profit for the six months through March and sharply higher provisions as they grappled with the impact of the pandemic. At the half year, ANZ and Westpac deferred decisions on dividends, while National Australian Bank Ltd. paid an interim dividend of A$0.30.

CBA's loan impairment expense was A$2.52 billion, which was an increase of A$1.31 billion on last year and included a A$1.5 billion Covid-19 provision which had previously been flagged at the lender's third-quarter update in May.

The bank said the loan impairment expense increased "as a result of forward looking adjustments made to provisions for the expected impact of Covid-19."

Still, CBA Chief Executive Matt Comyn said the lender was prepared for a range of economic scenarios.

"We have made provisions accordingly and will continue to monitor our lending portfolios closely as the situation evolves," he said.

Australia's other major banks have also announced provisions for expected Covid-19 impacts. Westpac said it has set aside A$1.6 billion, while National Australia Bank made a A$807 million provision and ANZ took an impairment charge of A$1.67 billion, with A$1 billion of that directed toward the impacts of the pandemic.

CBA, viewed by analysts as a bellwether for the industry due to its scale, said it had deferred repayments on 8% or 135,000 of its home loans, and 15% of its business loans as part of a sector wide "loan holiday" program to help customers struggling with the economic impact of Covid-19.

At the same time, the bank's deposit funding rose to 74% from 69% due to continued growth in deposit volumes, and its net interest margin, a profit measure based on the difference between the rate at which a bank borrows and lends, contracted by 0.02% to 2.07%, due to the impact of lower interest rates.

"We anticipate that lower credit growth and low interest rates will continue to put pressure on our revenue, requiring a focus on performance, efficiency and capital allocation," Mr. Comyn said.

Operating expenses rose by 0.7% to A$10.90 billion due to higher staff and IT costs and partly offset by lower remediation costs, said CBA. For FY 2020 the lender put aside A$454 million in provisions for remediation and A$399 million for risk and compliance costs.

"Progress continued to be made on remediation, with A$732 million refunded to customers as at 30 June," it said.

Mr. Comyn said the bank was focused on delivering performance in our banking businesses, after "having substantially divested our wealth management businesses in line with our simpler, better bank strategy."

In May Commonwealth Bank said it had agreed to sell a 55% stake in its wealth management arm Colonial First State to private-equity firm KKR & Co. Inc, which it said at the time implied a total valuation for CFS of A$3.3 billion.

Mr Comyn said Australia and New Zealand "are very well positioned, particularly so on a global basis" despite an uncertain economic outlook.

The bank expects GDP to fall by about 4% over this calendar year, but to bounce back by about 2% next year. Unemployment is likely to peak toward the end of this calendar year at close to 10%, "which is clearly a significant economic impact overall," Mr. Comyn said. 



  Write to Alice Uribe at alice.uribe@wsj.com