In news that will help steady a weak banking sector on the ASX, the Commonwealth Bank has revealed a solid 6% plus rise in first quarter cash earnings.
CBA shares were up 2.6% yesterday after a 1% rise on Tuesday and resisted a sell down in financial stocks on Wall Street overnight Tuesday.
CBA shares ended at $80.27 and regained the $80 level for the first time since it was falling in early August. It was a much stronger reaction from the market than the recent full year results for rivals, NAB, Westpac and the ANZ.
The country’s biggest bank said cash earnings rose 6.5% to around $2.65 billion (more than $10 billion at an annual rate against the $9.9 billion reported for 2016-17).
The CBA said its statutory profit was $2.80 billion.
“Operating income growth of 4% underpinned by volume growth and improved margins,” the bank said this morning.
“Sound credit quality, with Loan Impairment Expense of $198m in the quarter…Further balance sheet strengthening, with deposit funding at 68% and the Liquidity Coverage Ratio at 131%.
The bank said that "operating income grew by 4%, with banking income supported by improved margins. Home lending growth was managed within regulatory limits.”
The CBA said trading income was broadly flat. Funds management income decreased slightly, with lower margins partly offset by the benefit of positive investment markets. Insurance income improved reflecting fewer weather events and the non-recurrence of loss recognition.”
“Expense growth of 4% includes provisions for our current estimates of future project costs associated with regulatory actions and compliance programs,” an oblique reference to the CBA’s expectations of the costs associated with the Austrac money laundering claims.
CBA will file its defence in the matter next month (and will be discussed at next week’s annual meeting), and it said yesterday it remained impossible to estimate the potential fines it may face.
In a sign of the benefit banks are receiving from historically low levels of bad and doubtful debts, costs for loans it had to write down fell to $198 million, or 0.11% of the bank’s total loans. That compares with loan impairment expense of 0.15% of loans over the year to June.
The CBA said corporate impaired loans were “substantially” lower in the quarter, while credit quality in the consumer bank segment also improved, despite ongoing stress among some customers in Western Australia.
CBA said its home loan book had increased by 2.7% from the June 2017 quarter, while household deposits were up 4.7%.
