Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
What’s Happening To The CBA Share Price?
Commonwealth Bank shares are suffering today in reaction to the big bank’s third quarter announcement.
The key issue for investors was that the bank said that it had recognised an additional $714 million of customer remediation provisions in relation to the issues that arose from the Royal Commission.
CBA CEO Matt Comyn said: “The additional $714m in pre-tax customer remediation provisions taken in the quarter demonstrates this commitment, and builds on a range of other initiatives to achieve better customer outcomes, including removing and reducing fees for our customers.”
The problem is that this additional charge hit the cash net profit by 28% to $1.7 billion. Excluding ‘notable’ items, cash profit fell by 9%.
CBA said that its net interest income declined 3% due to the impact of two fewer days, but on a per-day basis net interest was flat with volume growth of mortgage lending, deposits and business lending offset by a reduction of institutional lending and a “slight reduction” of the net interest margin (NIM).
The bank also said that its lending portfolio quality remains sound but the loan impairment expense / bad loans increased to 0.17%, up from 0.15% in the first half of FY19.
CBA said consumer arrears were impacted by subdued wage growth and ‘cost of living’ challenges, most pronounced in outer metro areas of Perth, Melbourne and Sydney.
The bank also revealed that loans in negative equity represent 3% of total loans based on 31 March 2019 valuations, with around 75% in Western Australia and Queensland. One could guess quite a lot of this relates to regional mining towns.
With higher lending restrictions, higher capital requirements and rising bad debts, it seems bank shares are risky at the moment. The growth businesses in the FREE REPORT below could be better long term investment ideas compared to CBA right now.
At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.