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CBA (ASX:CBA) share price under spotlight on mixed FY23 result

The Commonwealth Bank of Australia (ASX: CBA) share price is in focus after the ASX’s largest bank share released its FY23 result.

FY23 highlights

Here are some of the main figures from the report for the 12 months to 30 June 2023

  • Cash net profit after tax (NPAT) rose 6% to $10.2 billion
  • Statutory net profit up 5% to $10.2 billion
  • Net interest margin (NIM) improved 0.17% to 2.07%
  • Annual dividend per share up 17% to $4.50
  • Final dividend of $2.40 per share
  • Loan impairment expense increased by $1.46 billion
  • Intention for a $1 billion share buyback

The bank explained that the operating expenses rose by 5% to $11.6 billion because of higher inflation, additional technology spending and loan volume growth, partly offset by productivity initiatives.

Home lending grew by 5% (the same speed as the overall loan system) and business lending increased by 11.4% (1.4x faster than the overall loan system).

The loan impairment expense increased by so much because of ongoing cost of living pressures and rising interest rates, and the fact that CBA’s FY22 result included the release of some credit provisions dating back to COVID-19.

CBA’s NIM is an important lending profit measure which shows how much of a margin it’s making on its lending to borrowers, compared to the cost of the funding of that money (like term deposits). It said the monthly margin peaked in late 2022 and the bank is continuing to “manage headwinds”. The performance of the NIM may be essential for the CBA share price and dividend for the foreseeable future, combined with how credit provisions and bad debts go.

Second half deterioration

Profit peaked in the first half of FY23. CBA told investors that the FY23 second half statutory profit was 5% lower than the first half, and cash net profit was down 3%.

Turning to the arrears, its personal loans, credit cards and home loans all saw an increase in the amount of borrowers that were overdue by at least 90 days. Home loan arrears went from 0.43% at December 2022 to 0.47% at June 2023.

To me, the more interesting statistic is that home loan arrears that were at least 30 days overdue went from 0.82% at June 2022 to 0.92% at June 2023, a larger increase than the 90-day statistic, and shows there could be more pain to come because 30-day arrears can turn into 90-day arrears.

The second half NIM dropped by 5 basis points (0.05%) in the second half, showing lower profitability.

Final thoughts on the CBA share price

CBA seems to be showing that it’s handling this period well so far, and its loan book is still performing quite well. Arrears are still historically pretty low.

But this result also showed that profit was as good as it’s going to get in the FY23 first half. With arrears rising, it seems profit may be lower for a period of time. We’ll just have to wait and see how difficult things get and how long conditions remain tricky.

CBA shareholders can be pleased with the higher dividend, but I’d look at other ASX dividend shares for income opportunities at the current valuation.

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