It was an incredible month for the Commonwealth Bank of Australia (ASX: CBA) share price as it rose 12% over May 2021. It managed to breach $100.
What’s happening to the CBA share price?
CBA has been a strong performer since the worst of the COVID-19 crash. The bank’s loan book has held up well, though still provisioned strongly for the potential fallout.
At 31 March 2021, it still had $6.5 billion of total credit provisions. CBA explained that Australia and New Zealand’s economic recovery from the COVID-19 pandemic continued during the March quarter. Improvements in the economic outlook, sound portfolio credit quality and a continued reduction in consumer finance balances resulted in a moderate reduction in total credit provisions from $6.8 billion. There was a positive outcome for the loan impairment expense for the quarter (a benefit of $136 million, or 0.07% of average gross loans and acceptances).
CBA said that provisioning coverage remains strong, with the bank continuing to adopt a cautious approach to managing risks across its lending portfolios as the recovery continues, particularly as customers transition from temporary COVID-19 support measures.
Only 1% of deferred loans were impaired or restructured, with another 4% requiring ongoing assistance. A modest increase in its home loan portfolio arrears is expected over the next few months. But this is a strong outcome compared to how things looked 12 months ago.
Big profit generation
The big bank is still making a lot of money for investors. In the third quarter of FY21, it made $2.4 billion of statutory net profit.
Third quarter cash net profit from continuing operations was $2.4 billion in the quarter, up from 24% in the first half quarterly average, mainly driven by the lower loan impairment expenses I’ve already referenced.
It’s this impressive profit that is improving the balance sheet and improving the outlook for shareholder payouts like dividends. The CET1 capital ratio has increased to 12.7%. CBA looks like a fortress right now.
Summary thoughts on CBA and the share price
I wasn’t expecting CBA to get to $100. But here we are. The economic picture is looking much better and profit is returning. The search for yield is strong with interest rates still so low.
Banks are definitely known for being big dividend payers. But, compared to local and global peers, CBA is expensive. But it’s doing the right things when it comes to stability and offering customers the best service.
However, for me, there are other ASX dividend shares that might be able to offer more long-term growth in the coming years.
