Reporter's view: Market split on margin outlook signals from CBA result
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Reporter's view: Associate editor, banking and finance Andrew Cornell writes: "It may have only been a trading update but Commonwealth Bank’s quarterly result today was poured over with the same interest as the complete full and half year results delivered by the other majors and Macquarie Group over the last week.
"That’s because CBA is the largest and most profitable bank, the pricing anchor for retail banking in Australia and trades at a growing premium to the others.
"Like the others, this result was broadly in line with consensus. But that hasn’t stopped a broad variation of views — nor CBA shares being sold off more than ANZ and National Australia Bank (Westpac meanwhile went ex-dividend).
"The skew in the sell-off is because CBA (and Westpac) are the two banks most leveraged to retail banking in Australia. ANZ’s biggest profit driver is institutional banking while NAB’s is business banking. Margin pressure in retail banking is the central issue after a period of intense home loan and deposit competition.
"On margin pressure, Morningstar saw a gradually improving trend, UBS a manageable one, and Saxo Asia Pacific an impediment. E&P believes the margin outlook is 'too pessimistic' but Jefferies disagrees and said they 'struggle to agree with the NIM (net interest margin) moderation narrative. On the deposit side, rational savers are seeking to bank better yields in a higher for longer rate environment'.
"When all the banks are over-valued on fundamentals, expect to see more of this debate around the margins."
CBA shares dip on Q3 profit drop
More news: Shares in Commonwealth Bank lowered in morning trade after the big four lender reported a drop in third quarter cash profit.
CBA shares were down 1.4% to $118.11 by 11:10am AEST.
E&P Capital analysts noted that the bank's cash earnings run-rate and core profit run-rate beat consensus, as well as their own estimates. CBA's credit impairment charge of $191 million was also lower than expected.
The analysts added that the current consensus outlook for CBA's net interest margin was "too pessimistic" and expected consensus core profit upgrades of around 2% for FY25 and FY26.
However, they said that CBA's markets revenue was not as strong as other bank majors during the quarter, while asset quality was deteriorating in line with its peers.
CBA third-quarter profit drops as margins narrow
The news: Australia’s biggest lender, Commonwealth Bank, has posted a drop in third quarter cash profit as expenses rose and margins narrowed in a competitive market.
The numbers: Unaudited cash profit for the three months to 31 March 2024 fell 5% from a year ago to $2.4 billion and was down 3% from the average of the first half.
Operating income was down 1% while operating expenses rose 2% in the quarter. Provisions were up 10 basis points from a year ago to 1.66%.
The bank's shares last closed at $119.74 and over the last year the stock price has risen 23.01%.
The context: CBA reported slightly lower net interest margins due to ongoing competitive pressures and customers switching to higher yielding deposits. Business lending was up 7.3% while home lending rose at a more modest pace of 3.1% in a competitive market.
The lender recorded loan impairment expenses of $191 million for the quarter with arrears rising for home loans, credit cards and personal loans as higher interest rates impacted borrowers.
What they said: "We recognise all households are feeling the impact of higher inflation and higher rates. However, immigration is providing a structural tailwind for the economy," CBA chief executive Matt Comyn said.
"The bank continued to strengthen its balance sheet and remains well positioned to help its customers, communities and the economy."
The source: ASX announcement
