The Commonwealth Bank of Australia (ASX: CBA) share price is in focus today after the ASX bank share reported its HY23 result and growing its dividend.
CBA HY23 result
This is a highly anticipated result from the bank, here are some of the highlights:
- Cash net profit increased by 9% to $5.15 billion
- Statutory net profit after tax (NPAT) grew by 10% to $5.2 billion
- Pre-provision profit increased by 18% to $7.82 billion
- Interim dividend per share of $2.10, up 20%
CBA explained that its pre-provision profit increased by 18%, reflecting “disciplined strategic execution, consistent operational performance and the recovery in net interest margins.”
The bank put the growth of the net profit down to growth in net interest income, but it was offset by higher operating costs and a loan impairment expense.
Overall, net profit growth is helpful for the CBA share price over time.
Net interest margin (NIM) improvement
The NIM tells investors how much of a profit margin it’s making on its lending. It compares the cost of the funding (eg term deposit interest rate) against the overall rate it’s lending out (eg mortgage loan rate). If the NIM is higher, then the bank is hopefully making more profit.
CBA said that its NIM had grown to 2.10%. That’s an increase of 18 basis points (0.18%) compared to the FY22 first half, and 23 basis points (0.23%) up on the FY22 second half.
The bank said that NIM improved because of the rising interest rate environment, but partly offset by “competitive pricing pressure.”
CBA dividend
I’m sure many investors were wondering about the dividend.
CBA decided to increase the dividend by 20% to $2.10 per share. The bank said this represented continued capital and balance sheet strength.
It represented a payout ratio of 69% of net profit, which is in line with the board’s target payout ratio. It means it’s still keeping almost a third of profit in the business to re-invest for more growth.
Arrears
In this environment where interest rates have jumped massively, it’s going to be important to see how borrowers are coping. A significant worsening could be bad news for the CBA share price.
The bank said that the loan impairment expense increased by $586 million to $511 million, reflecting “ongoing inflationary pressures, rising interest rates, supply chain disruptions and decline in house prices.”
Looking at the home loan arrears that are more than 90 days overdue, it decreased to 0.43%, down from 0.52% at December 2021. While personal loans and credit cards saw a slight decrease year on year, those two lending products saw a bit of an uptick at the end of the period.
Final thoughts on the CBA share price
CBA shares have gone on a strong run over the last few months.
The growth seems to be somewhat justified – higher profit, higher margins, no worrisome increase in arrears were revealed in this result.
However, I think the fact that there hasn’t been a big increase in arrears suggests that the Reserve Bank of Australia (RBA) may need to do even more to slow down demand in the economy.
While it’s good to see a big increase in the dividend, I think CBA shares are too expensive compared to the other major banks to be considered great value.
