Commonwealth Bank’s third-quarter profits surged from the Covid-depressed same quarter of 2020, confirming the rebound in the fortunes of banking and the big rally in shares of the sector – especially the big four- since late last year.
The news pushed the bank’s shares up in a market weaker all day. CBA shares ended up a solid 1% at $95.57 as investors saw the underlying strength of the update.
As we saw with the ANZ NAB and Westpac, the Commonwealth saw a fall in bad debt provisions which helped improved unaudited cash earnings in the quarter to $2.4 billion.
The CBA said it had cut its credit provisions in response to the improving economy, delivering a $136 million benefit to the bank in the March quarter. Analysts expect more of the same in the final three months of the Commonwealth’s June 30 financial year. The CBA said impairment charges fell $577 million from the first half quarterly average.
While the $2.4 billion was a doubling on the third quarter of 2019-20, the size of the rise is misleading because that is when the CBA tucked away over a billion dollars in extra bad debt provisions to meet what everyone said would be a surge in bad debts among home owners and businesses.
That didn’t happen because of the support set up by regulators, governments and the banks that allowed debt deferrals, withdrawals from superannuation and the JobKeeper and JobSeeker payments systems.
The CBA said the third quarter figure was up 24% from a quarterly average of the December half year results.
CEO Matt Comyn said the bank was well placed to support customers as the economy bounced back from the COVID-19-induced shock, and he pointed to strong growth in the bank’s lending.
CBA said it had expanded in home loans, business loans, and deposits at a faster pace than the industry average during the quarter.
“Our disciplined focus on operational excellence was reflected in continued strong operational performance in the March quarter,” Mr Comyn said.
“This was highlighted by strong home loan funding volumes, particularly through our proprietary network, and business lending continuing to grow at greater than three times system levels.”
“Lending to home buyers was up $6.7 billion as the housing market recovery continued to gather pace, with CBA recording a further increase in market share at 1.1 times system growth.
“Business lending was also well ahead of system growth (greater than three times system),” the bank told the ASX in the third quarter update
Analysts are now confident the CBA will at least match the interim dividend of $1.50 a share in the final when announced in August to make a full year payout of $3 a share, perhaps a few cents more.
