The Commonwealth Bank of Australia (ASX: CBA) share price is falling after the bank reported its latest quarterly profit. Margins are under pressure.
CBA’s FY22 Q3
The big four ASX bank reported that it made $2.3 billion of statutory net profit after tax (NPAT).
It also generated $2.4 billion of cash net profit after tax. Year on year, this represented a decline of 2%. Compared to the FY22 first half quarterly average, the third-quarter profit was flat.
Expenses declined by 2% on a headline basis, or 1% excluding remediation costs. The benefit of higher annual leave usage and two fewer days was partly offset by increased staffing levels.
Meanwhile, income fell 1% (though it was up 1% on a ‘day weighted basis’, meaning it generated slightly more profit on average per day). CBA reported lending volume growth of 3% and higher non-interest income, which helped to offset continued profit margin pressure from elevated swap rates, mix effects and competition.
Year on year, home lending increased 8.5%, while business lending rose by 12.6%.
CBA said that the loan impairment expense remained low in the quarter, with a benefit of $48 million. Its credit provisions continue to reflect “sound portfolio credit quality” and a cautious approach to managing potential risks.
Outlook
Commentary on the outlook can have an impact on the CBA share price. The CBA CEO, Matt Comyn, said:
Looking ahead, we are well positioned to support business investment to build Australia’s future economy. Through disciplined execution of our strategic agenda, we will continue to deliver for our customers, communities and shareholders as we build tomorrow’s bank today.
It will be very interesting to see how CBA’s profitability reacts to the rising interest rate.
The Reserve Bank of Australia (RBA) is planning a number of interest rate increases over the next 12 months. While this should be helpful for margins, its costs (like savings accounts) are likely to go up too. Plus, competition seemingly remains strong, so CBA won’t be able to win as much as some may have expected.
Final thoughts on the CBA share price
CBA is a high-quality bank. Considering interest rates are rising, I think it’s at a reasonably fair price now, so I wouldn’t want to jump on shares today. Of the big four, I like the look of National Australia Bank Ltd (ASX: NAB) the most – its leadership seem to have put it on the right course.
However, with so many ASX growth shares being sold off so heavily, there are plenty of opportunities that could be better picks for the long-term.
