The market took the Commonwealth Bank’s first-half trading update in its stride yesterday because there was nothing in the limited announcement to alarm the market.
The bank said ahead of its annual meeting in Brisbane that unaudited cash profit was about $2.5 billion in the September quarter as charges for bad debts remained at historic lows, which was again a trait shown in the 2017-18 results from rivals ANZ, CBA, and Westpac.
The $2.5 billion result is 5.6% less than the $2.65 billion CBA made in the same quarter last year.
CBA shares rose 0.6% yesterday to $69.35 after being up more than 1.3% earlier in the day.
The bank said in its trading update said the result was an 11% increase on the quarterly average of the six months to June 2018 or a 3% rise excluding one-offs.
“The fundamentals of our business remain strong, highlighted in this quarter by continued deposit growth, sound credit quality, and balance sheet strength,” chief executive Matt Comyn said in a statement.
The trading update, which contains limited financial detail, said the bank’s operating income grew by 1%, with fees making up for flat net interest income.
The net interest margin, which compares funding costs with what the bank charges for loans, shrank because of higher funding costs and stepped up competition in the mortgage market.
The update said the bank’s home loan book, which accounts for about one in four mortgages in Australia, expanded by an annualised 3.1%, which was slower than the 3.6 percent growth across the market. CBA’s deposits grew by an annualised 8.9%.
CBA said its expense for impaired loans fell compared with last financial year, from 0.15% of gross loans to 0.11%.
It said “troublesome” loans, which includes loans where customers are falling behind on repayments but are not yet classified as “impaired”, were broadly stable in the quarter, and there was a “moderate” improvement in consumer arrears.
CBA last week announced the $4.13 billion sale of Colonial First State Global Asset Management, while it will also spin off its wealth management and mortgage broking businesses.
Mr. Comyn said this was a key milestone in the bank’s plan to simplify its operations and focus on its core of retail and business banking.
“We are building a simpler, better bank, fully aligned to meeting the needs of customers in our core markets,” Mr Comyn said.
“We are simplifying our portfolio, operating model and processes to deliver better customer, efficiency, and risk outcomes.”
Its common equity tier 1 capital (CET1), an important gauge of strength, was 10%of risk-weighted assets. The bank said that once asset sales including its wealth, life insurance and funds management businesses were taken into account, its CET1 ratio would be 11.2%, which is well ahead of regulatory requirements of a 10.5% minimum by 2020.
