The Commonwealth Bank of Australia (ASX: CBA) share price has been among the best performers on the ASX 200 on Wednesday.
In afternoon trade, the banking giant's shares are up 5% to $99.08.
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Why is the CBA share price racing higher?
The catalyst for the rise in the CBA share price today was the release of the bank's half year results.
For the six months ended 31 December, Australia's largest bank delivered a cash profit well-ahead of the market's expectations at $4,746 million.
CBA's profit was up 23% over the prior corresponding period and driven by strong business outcomes, reduced remediation costs, and lower loan loss provisions due to an improved economic outlook. This helped offset a weaker net interest margin caused by increased switching to lower margin fixed home loans, the impact of the rising swap rates, and continued pressure from home loan competition.
This ultimately led to CBA ending the period in a very strong financial position. The bank reported a CET1 ratio of 11.8%, which is notably higher than APRA's unquestionably strong benchmark of 10.5%.
But it won't be at 11.8% for much longer. In light of its strong capital position, CBA has decided to return more funds to shareholders via an on-market share buyback.
The CBA share buyback
Hot on the heels of an off-market $6 billion share buyback last year, CBA has announced a $2 billion on-market buyback today. This is expected to reduce its CET1 ratio to 11.4% once complete.
Management commented: "The strong capital position and our progress on executing our strategy mean that we are well placed to continue to support our customers, manage ongoing uncertainties and continue returning excess capital to shareholders."
CBA is expecting to start its buy-back after the completion of the on-market share purchase associated with neutralising the impact of interim dividend.
It also notes that "The timing and actual number of shares purchased under the buy-back will depend on markets conditions, available trading windows, the prevailing share price and other considerations."
Based on the current CBA share price, the bank could buyback approximately 20.2 million shares. While this is only a fraction of the ~1.7 billion shares it has on issue, it should still be a small boost to the bank's earnings per share metric in FY 2023.
