Yesterday’s trading update from the Commonwealth Bank was cautiously upbeat, sort of.
The bottom line was that the bank is heading for record earnings for the year to June of close to $6 billion.
Lower bad debt provisions were again the driver of the improved profitability, as it was in the December half (a fall of more than $870 million in the December half, with a fall in the March quarter of half a billion).
That helped drive unaudited cash earnings 30% higher for the quarter, to around $1.5 billion, according to the update.
That compares with $1.15 billion reported in the March quarter of 2009.
The latest figure means the unaudited cash earnings figure for the first 9 months of the year is around $4.4 billion.
And if it gets a similar quarter in the three months to June, earnings will give the $6 billion mark a nudge.
The bank didn’t provide a net income figure.
The bank was less effusive about trading and banking conditions, saying loan growth was "muted".
That’s another way of saying not much happening.
“Margins continue to come under pressure,” the Bank’s CEO, Ralph Norris said in the statement.
“Whilst the economic outlook is improving, short-term risks and uncertainties remain. Operating conditions remain challenging.”
Impairment expenses in the quarter were about $500 million, the Commonwealth Bank said. That compares with a charge of $630 million in the same period a year earlier.
The Commonwealth said the quarter included the following highlights:
Good volume growth in key markets, particularly deposits; Stable customer margins, with volatility evident in other elements of Group Net Interest Margin (NIM); Softer Other Banking Income, including the impact of reductions made to retail exception fees in late 2009; Credit quality trends continuing to move in line with expectations; Impairment Expense of approximately $500m in the quarter, with improvements in CBA Institutional and SME segments balanced by the continued work-through of legacy issues in the Bankwest commercial book; Strong balance sheet provisioning and coverage ratios maintained, with the ratio of Total Provisions to Credit Risk Weighted Assets improved to 2.17 percent; The Group’s Tier 1 capital ratio strengthened to 9.2 percent; Liquid asset balances maintained at $89 billion; and Strong funding position maintained, with the Group fully-funded for FY10 and an average duration on new term debt issuance of approximately 5 years.
Besides describing conditions as "muted", Mr Norris added that "Whilst we have clearly passed the peak in the bad debt cycle, key credit quality indicators remain at elevated levels and we continue to expect gradual, rather than dramatic improvement.
"Against this background, the Group performed well through the quarter, with good volume growth, further improvements in customer satisfaction levels and disciplined cost control. The consistent delivery of our strategic agenda is driving good performance and customer outcomes in each of our businesses.
"Whilst the economic outlook is improving, short term risks and uncertainties remain. Recovery from the Global Financial Crisis will take time and there will be challenges along the way, evidenced by the current sovereign debt issues in the European Union.
"Given this uncertainty, the Group is retaining its conservative business settings, with capital, provisioning, funding and liquidity levels all remaining very strong."
In other words, times are still tough, but the bank is earning its way.
Ahead is the class action on bank fees revealed yesterday.
