Investors gave the thumbs up to yesterday’s third quarter trading update from the Commonwealth Bank (CBA) after they discovered it didn’t contain any shocks, or suggestions of problems to come for the country’s biggest bank.
Yes, there was a rise in the impaired loan set aside to $427 million from $256 million (which related to one exposure in the corporate area), and that saw the shares dip 1% in early trading.
But then they turned and bounced nicely before closing on $75.78, up 1.9% on the day.
The Commonwealth said unaudited cash earnings for the March three months were approximately $2.3 billion, around $100 million above the $2.2 billion reported a year ago.
The bank said operating income growth in the quarter was similar to the first half and the group net interest margin was largely unchanged from the first half of 2015-16.
While the CBA reported a small rise in loan impairments mostly because of higher exposures in its institutional loan book, it said credit quality remained sound although “pockets of weakness remain and warrant caution, particularly as global volatility continues”.
The bank said personal loan arrears “remained elevated, with seasonal factors also evident in the quarter”, while consumer arrears rates were in line with expectations in the quarter and home loan arrears remained low, notwithstanding areas of WA and Queensland that continued to be impacted by the mining slump.
The bank said its loan impairment expense was higher in the quarter at $427 million, or 25 basis points of its gross loans and acceptances. The rise largely stemmed from a “small number of exposures in the Group’s institutional lending portfolio which became impaired or exhibited heightened signs of stress, including a single relatively large domestic exposure with a syndicate of lenders including other Australian major banks”.
The bank said it was maintaining "prudent levels of provisioning" and its total provisions were higher at $3.9 billion.
Home lending volume growth was “consistent with recent trends", CBA said, while domestic business lending growth remained at mid-single digit levels and household deposits continued to grow above the average of the other banks.
But funds management was tougher, with income continued to be impacted by weak investment markets.
The CBA said the Australian economy “continues to perform relatively well, with the steady transition from a mining-dependent to a more broad-based economy evident in GDP and unemployment trends, and supported by low interest rates and the decline in the Australian dollar over the past 18 months".
