The Commonwealth Bank of Australia (ASX: CBA) share price will be under scrutiny today as the big bank reported its third quarter profit.

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.

Here’s What CBA Reported

Commonwealth Bank reported that its cash net profit fell by 28% to $1.7 billion. Even if the significant items are excluded the bank still showed a 9% fall in cash net profit. Statutory net profit was $1.75 billion.

The main reason for the drop in profit was the large $714 million (pre-tax) hit of Royal Commission related customer remediation. Operating income dropped by 4% due to a combination of seasonal impacts, temporary headwinds and lower (rebased) fee income. Operating expenses increased by 1%.

On the lending growth front, compared to the December 2018 quarter it achieved (annualised) 2.5% growth in home lending, 2.8% growth in household deposits and 2.3% growth in business lending.

Commonwealth Bank’s loan impairment expense was $314 million in the quarter, which was a slightly higher percentage of its total loans with a rise in consumer (as opposed to corporate) loans.

Perhaps worryingly, CBA’s home loan consumer arrears of more than 90+ days increased to 0.71% of loans at March 2019. As a reminder, 90+ mortgage arrears were at 0.67% at December 2018, 0.65% at March 2018, at 0.59% at December 2017, 0.57% at March 2017 and 0.53% at December 2016. Not a great trend right?

Commonwealth Bank said its Common Equity Tier 1 (CET1) ratio was 10.3% at March 2019, which was “up” 0.30% excluding the impact of the 2019 interim dividend.

CBA CEO Matt Comyn said: “We continue to make progress on our strategy to become a simpler, better bank. While headline profitability was impacted by higher remediation provisions, our sound business fundamentals ensure we remain well-placed in a challenging environment,”

Is CBA A Buy?

I do not think the rising mortgage arrears is a good sign for CBA’s near future. Interest rates are at record lows, so it’s not a good sign things are deteriorating.

Commonwealth Bank is in a very competitive industry and I don’t think we will see as impressive results over the next two decades as the last two decades. Its dividend appears attractive but is certainly not guaranteed, as we saw from National Australia Bank Ltd (ASX: NAB).

I would rather invest in one of the reliable and proven businesses in the free that pay dependable dividends over Commonwealth Bank.

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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.