The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch this morning following the release of its first quarter update.
How did CBA perform in the first quarter?
During the three months ended September 30, CBA posted an unaudited statutory net profit of approximately $3.8 billion. This includes a $1.5 billion gain on the sale of Colonial First State Global Asset Management.
Unaudited cash net profit from continuing operations came in at $2.3 billion, which was up 5% on the prior corresponding period excluding notable items.
The banking giant's net interest income increased 3% during the quarter. This was due partly to an additional 1.5 days in the quarter. On a day-weighted basis, net interest income was 2% higher, underpinned by volume growth in core markets of home lending, business lending, and household deposits.
Excluding a 4-basis point benefit from lower basis risk, the bank's net interest margin was lower than June 2019 due to headwinds associated with a low interest rate environment. This is expected to continue to impact margins in future periods.
CBA's operating expenses increased 2% (excluding notable items) on the prior corresponding period. This reflected higher staff costs and IT amortisation.
The bank finished the period with CET1 ratio of 10.6%. However, this is expected to be boosted by announced divestments in the current quarter, putting it comfortably ahead of APRA's requirements.
Credit quality.
The credit quality of CBA's lending portfolios remains sound. The bank's Loan Impairment Expense was $299 million during the quarter. This equates to 16 basis points of Gross Loans and Acceptances, which is unchanged on FY 2019.
Consumer arrears improved in the quarter due to seasonality and the benefit of higher tax refunds. However, Personal Loan arrears rates remain elevated due to lower portfolio growth and continued pockets of stress in Western Sydney and Melbourne.
Troublesome and impaired assets increased to approximately $8.1 billion. Whereas Corporate Troublesome assets continued to reflect weakness in discretionary retail, construction and agriculture, as well as single name exposures.
Management commentary.
Chief Executive Officer, Matt Comyn, believes the bank is well placed in a difficult market.
He said: "The Bank remains well placed in a challenging operating environment, characterised by global macroeconomic uncertainty and historically low interest rates. Our strong capital position and balance sheet settings mean we are well placed to meet the needs of our customers, illustrated by good volume growth in our core markets of home lending, business lending and household deposits."
"In a low interest rate environment we will continue to maintain a disciplined approach that delivers balanced outcomes for all our stakeholders, including over 6 million savings customers, 1.6 million home loan customers and 800,000 retail shareholders, including many retirees, who rely on our dividend," Comyn added.
