The Commonwealth Bank of Australia (ASX: CBA) share price will be under intense scrutiny this week as the bank is due to hand in its FY22 half-year result.
What is going to impact the CBA share price?
It’s reporting season again. This is where businesses get to tell investors about how well the last six or 12 months has gone. For CBA, the upcoming result represents the six months to 31 December 2021.
Share prices move all year long. But it’s only when companies tell investors about their performance that we get a real insight into how things are going.
There are some key statistics that I’m going to be focused on when looking at the bank’s performance.
Net profit
How much profit a business makes might be the biggest contributor to the sustainable change of a share price. So, CBA’s profit could be the key for the CBA share price performance this week.
Banks have seen a strong recovery in net profit since the COVID lows. CBA (and the others) took on large bad debt provisions in anticipation of many borrowers not being able to pay their loans during the economic disruption of the pandemic. But those large provisions aren’t going to be repeated. In-fact, it’s possible that CBA could release some of those provisions. Or it may not. There’s still a lot of uncertainty around.
The first quarter of FY22, to September 2021, saw cash net profit of $2.2 billion, with pre-provision profits being stable. However, year on year, actual cash net profit from continuing operations was up 20% in the first quarter.
Dividend
Lots of investors are just focused on the dividend. CBA’s payouts fund a lot of retiree living expenses.
CBA’s dividend was pretty resilient during COVID, so I’m not expecting a huge (recovery) increase in this result. But, with reported net profit recovering, I think the big four ASX bank’s board will enact a decent dividend increase in this result.
For the whole of FY22, CommSec’s numbers suggest that CBA is going to pay an annual dividend of $3.81. That’s a yield of 5.8% including the franking credits.
Net interest margin (and outlook)
The net interest margin, or NIM, is a key profitability measure for banks. It tells investors how much net interest profit the bank is making when comparing the interest income to the cost of funding the loans (like people’s savings accounts).
CBA’s NIM, and many banks, have been suffering from the low interest rate environment, intense price competition and higher liquid asset balances.
However, CBA and others have been increasing their interest rates on loans recently. It will be interesting to see any comments on the outlook for the NIM – which has a direct impact on profitability and therefore the CBA share price.
Arrears
Loan arrears are important, because they loans that are in arrears might be on the road to becoming bad debts.
CBA said in the first quarter that its portfolio had sound credit quality and that consumer arrears were lower in the quarter.
However, it did say that as the NSW and Victorian economies re-open, a modest uptick of arrears was expected as temporary loan repayment deferral arrangements finish.
Summary thoughts on the CBA share price and profit preview
The biggest bank will probably report fairly well, though how the market will react to that is another thing entirely.
I think CBA is a quality bank and a fairly dependable blue chip. But there are other ASX dividend shares that I’m focused on instead that may have more long-term growth potential.
