Commonwealth Bank of Australia (ASX: CBA) has just reported lower cash profit in the first quarter of FY21. Is it time to buy CBA shares?
What did CBA report?
The biggest ASX bank revealed that it generated $1.9 billion of statutory net profit after tax in the first quarter. Its cash net profit was $1.8 billion, which was down 16% on the same period last year.
Its income was stable compared to the quarterly average of the second half of FY20. CBA said there was core volume growth which helped to offset lower margins.
In terms of the net interest margin (NIM), it was even lower than the FY20 second half because of lower earnings on deposits and capital from lower interest rates, unfavourable lending margins (with lower margin fixed rate home lending) and higher liquid assets.
However, expenses went up by 2% excluding Royal Commission customer remediation though it was down 4% including customer remediation provisions in the second half of FY20.
Credit quality and balance sheet
CBA said that its credit quality indicators are being insulated by repayment deferrals and government support initiatives. The provision coverage has been increased with forward looking economic expectations and expected COVID-19 impacts.
However, since June 2020, the home loans that were in arrears over 90 days decreased from June 2020’s rate of 0.63% to September 2020’s rate of 0.55%.
The big ASX bank said that its balance sheet remains strong with deposit funding at 74%.
CBA’s common equity tier 1 (CET1) capital ratio was 11.8% – this was an increase of 20 basis points compared to June 2020 after the payment of the second half dividend.
Summary thoughts
CBA said that it remains well placed and committed to supporting customers and the wider community as the economy begins to recover, while continuing to offer support to those that need assistance.
The CBA share price continues to recover. It’d be my preferred big bank because of the higher quality (and lower arrears) of its mortgage loan book. But after the recovery from COVID-19, I’m not sure that CBA offers long term growth potential.
There are plenty of other ASX dividend shares that I would rather buy first such as Brickworks Limited (ASX: BKW) which I wrote about here.
