The Commonwealth Bank of Australia (ASX: CBA) share price has fallen into the red this morning after a bank provided its first-quarter update.
Currently, the CBA share price is down 6.25% to $101.95.
Lending growth offset by NIM compression
Key highlights for the quarter ending September 30 2021 include:
- Unaudited Statutory net profit after tax (NPAT) of $2.3 billion, up 2% year-on-year (YoY) and flat on the prior half
- Unaudited Cash NPAT of $2.2 billion, up 20% YoY but down 9% on the prior half
- Operating income of $6.1 billion, down 1%
- Operating expenses of $2.9 billion, also down 1%
- CET1 ratio of 11.2% after allowing for the $6 billion buy back and $3.5 billion in dividend payments
Despite stagnant income growth, CBA achieved above systems growth across its key segments.
Household deposits grew 12.0%, household lending 7.6% and business lending 13.0% on an annual basis.
Net interest margin (NIM) compression subdued growth, mainly due to higher liquid assets such as deposits, intense home loan competition and higher fixed-rate mortgages.
Furthermore, revenue was impacted by the divestment of Aussie Home Loans in addition to lower merchant fees as New South Wales and Victoria remained in lockdown for much of the quarter.
Expenses also fell, primarily due to 69% lower remediation costs, offset by a 3% increase in staff costs.
Commenting on the results, Chief Executive Matt Comyn said:
“Through the first quarter of FY22, our focus has remained on supporting our people, customers and communities as the economy recovers from the impact of COVID-19. Our focus on operational execution ensures we are well placed to provide this support as activity restrictions continue to ease. This was reflected in strong, above-system volume growth in core markets in 1Q22, continued sound portfolio credit quality and balance sheet strength
Lockdowns benefit customer credit
For the first quarter, CBA recorded a loan impairment expense of $103 million. The amount is equal to 0.05% of total loans and acceptances, implying sound customer credit quality.
Credit provisions remain unchanged quarter-on-quarter as the impact of the unwinding of previous provisions made last year flush out.
In total, 0.55% of total exposure remains impaired, an improvement from 0.74% one year ago.
About 10,000 customers took up temporary loan relief. Moreover, lockdowns mean there was less opportunity for discretionary overspending.
CBA expects arrears to increase in the next quarter as this unwinds.
Market spooked by lower margins
The market quickly sent CBA shares lower post the announcement, likely as a result of soft margins and the 9% drop in cash profit.
It’s worth noting the latter was a result of higher than usual prior half comparatives, which benefitted from non-cash provision revenue.
Overall, it was a sound result by CBA, with underlying lending growth tracking in the right direction.
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