The Commonwealth Bank of Australia (ASX: CBA) share price is under the spotlight after reporting its FY24 result.
CBA FY24 result
The major bank reported how it performed in the 12 months to 30 June 2024:
- Net interest margin (NIM) dropped 8 basis points (0.08%) to 1.99%
- Operating income was flat at $27.2 billion
- Operating expenses grew 3% to $12.2 billion
- Loan impairment expense dropped 28% to $802 million
- Cash net profit after tax (NPAT) down 2% to $9.84 billion
- Statutory NPAT drops 6% $9.48 billion
- Dividend per share increased 3% to $4.65
NIM is a key profit measurement because it tells investors what margin it’s making on its lending, comparing the loan rate to the cost of funding (such as savings accounts).
CBA said the NIM decreased year on year largely due to the impact of competition and deposit switching, partly offset by higher earnings on “replicating portfolio and equity hedges”.
Pleasingly, the NIM stabilised in the second half of FY24, rising by 1 basis point (0.01%).
Net profit was supported by volume growth in its core businesses. The bank said it’s taking a disciplined approach volume and margin – it increased its home let net interest income share, but ceded 61 basis points (0.61%) of market share.
At the pre-open CBA share price, the bank has a fully franked dividend yield of 3.5%. The full-year dividend payout ratio is 79%, which is at the upper end of its target payout range.
What about arrears?
CBA reported its troublesome and impaired assets increased to $8.7 billion in FY23, up from $7.1 billion in FY23.
Home loans that are at least 90 days overdue have increased from 0.47% of it home loan book at June 2023, up to 0.65% at June 2024.
The bank said it has total provisions of $6.1 billion at June 2024.
Personal loan arrears overdue by 90 days increased from 1.19% at June 2023, to 1.50% at June 2024. Credit card arrears overdue by 90 days rose from 0.55% at June 2023 and went up to 0.74% at June 2024.
Management commentary
The CBA CEO Matt Comyn said:
Many Australians continue to be challenged by cost of living pressures and a fall in real household disposable income. With slower economic growth and moderating demand, our strong balance sheet allows us to continue to support our customers and the broader economy, and deliver sustainable returns. We have made it easier for our customers to access hardship assistance; provided eligible homeowner customers with the option to suspend mortgage repayments; and supported all customers with access to money management tools.
We have remained focused on deepening our customer relationships, which drives higher engagement, and a better understanding of our customers’ needs to deliver superior experiences. Our ongoing focus on customers has led to more than one in three Australian consumers and more than one in four Australian businesses naming us their main financial institution.
Outlook for the CBA share price
The bank continues to perform better than what many investors may have expected a year ago, which is a good thing.
However, there is also a slight concern with the increasing arrears – households can only take so much with the high cost of living. But, the higher house prices are helping reduce the risks of banks like CBA not getting their loan money bank from a troubled borrower. Bad debt risks are relatively low considering how high arrears are, in my opinion.
The CBA CEO Comyn said on the outlook:
The Australian economy remains resilient with low unemployment, continued private and public investment, and exports supporting national income. Higher interest rates are slowing the economy and gradually moderating inflation. Australia remains well positioned but downside risks continue around productivity, housing affordability, as well as ongoing global uncertainty.
In my opinion, the CBA share price is too expensive to be an appealing buy. It’s a great business, but no company is worth any price. There are plenty of other ASX dividend shares I’d buy over CBA first.
