Commonwealth Bank of Australia (ASX: CBA) shares will be on watch today after Australia's largest bank released its highly anticipated half-year results. It will be interesting to see how the CBA share price performs as investors digest the numbers.
What could impact the CBA share price today?
The CBA share price will be in focus this morning after the bank reported operating income of $11,961 million for the six months ended 31 December 2020, which was down 0.5% on the same period last year. This was due largely to COVID-19 impacts and a 10-basis point reduction in its net interest margin to 2.01%, which offset core volume growth.
Operating expenses increased 2.3% for the half to $5,566 million. This was driven by higher investment spend, the impact of COVID-19, and increased volume-related expenses.
In respect to earnings, Commonwealth Bank reported a statutory net profit after tax of $4,877 million. This was down 20.8% on the prior corresponding period, due mainly to lower gains realised on the sale of businesses.
Cash net profit after tax from continuing operations was down 10.8% on the prior corresponding period to $3,886 million. Excluding COVID-19 impacts and remediation costs, the bank's cash profit would have been broadly flat.
From these earnings, the Commonwealth Bank board declared a fully franked interim dividend of $1.50 per share. This represents a dividend payout ratio of 67% of cash earnings.
How does this compare to expectations?
Commonwealth Bank appears to have delivered a stronger result than the market was expecting. This could bode well for the CBA share price today.
According to a note out of Goldman Sachs, it was forecasting cash earnings from continuing operations (pre-one offs) of $3,692 million and an interim dividend of $1.25 per share.
Provisions and credit quality
For the first half of FY 2021, the company recorded a loan impairment expense of $882 million. While this was higher than the prior corresponding period, it was down by over 50% from the second half of FY 2020.
The bank notes that arrears on home loans and consumer finance remain low and are being temporarily insulated by COVID-19 support measures.
As of the end of January, approximately 25,000 home loans with a balance of $9 billion remain in deferral. This is down from 145,000 loans with a balance of $51 billion at the end of FY 2020.
At the end of the half, total impairment provisions stood at $6.8 billion. This represents 1.81% of credit risk-weighted assets.
Despite this, Commonwealth Bank remains well capitalised with a CET1 ratio of 12.6%. This is up from 11.6% at the end of FY 2020 and is materially higher than APRA's unquestionably strong benchmark of 10.5%.
What's next for the CBA share price?
Commonwealth Bank's Chief Executive Officer, Matt Comyn, is cautiously optimistic on the future. He said:
Australia is relatively well positioned having started from a position of fiscal and economic strength. We have a solid pipeline of infrastructure projects, the outlook for mining and agriculture exports is strong, and the community has benefitted from the Government's significant income support measures.
Although the outlook is positive, there are a number of health and economic risks that could dampen the pace of recovery. We are prepared for a range of scenarios and have taken a careful approach to provisioning.
We also continue to monitor our lending portfolios closely for any signs of stress. The low interest rate environment will continue to put pressure on our revenue which is why we remain focused on performance, operational execution and capital allocation.
The Bank's leading franchise and strong foundations mean it is well placed for the challenges ahead. The strength of our balance sheet and capital position enables us to support customers and help lead the country through recovery. We will also continue to work with government, regulators and our industry peers to support initiatives that stimulate economic activity and jobs.
