The Commonwealth Bank of Australia (ASX: CBA) share price is under the spotlight after it reported its FY24 first quarter update.
FY24 first quarter update
CBA reported its numbers, being the first three months of the FY24 first quarter compared to the FY23 second half quarterly average.
Operating income was flat, driven by volume growth and 1.5 additional days in the quarter. But, it was hurt by lower lending margins, as measured by the net interest margin (NIM). Loan rates may have gone up, but not as much as they could have, and interest rates for savers have also jumped higher.
Operating expenses were up 3%, reflecting higher staff costs from wage inflation, higher amortisation, though this was offset by productivity initiatives.
CBA reported a loan impairment expense of $198 million, with collective and individual provisions “slightly higher”. Despite that, the portfolio credit quality remained “sound”, with credit quality indicators “still near historic lows”.
Cash net profit after tax (NPAT) was flat at $2.5 billion. But, compared to the first quarter of FY23 it was up 1%. The ASX bank also made statutory NPAT of $2.5 billion. Profit is key for the CBA share price.
Its balance sheet retained the “strong settings”, and its CET1 ratio was 11.8%. That’s after the $4 billion dividend payment for the second half of FY23, including buying back more than $700 million of shares to satisfy the dividend reinvestment plan and it commenced the previously announced $1 billion share buyback.
How are arrears going?
Compared to June 2023, CBA said that the home loan arrears increased by 2 basis points (or 0.02%) to 0.49% at September 2023. This was only a little higher than September 2022’s 0.46% and it was the same as June 2022 at 0.49%. A significant worsening here would be bad for the CBA share price.
Credit card arrears increased 9 basis points (0.09%) over the three months to September 2023 to 0.64%, while personal loan arrears fell 4 basis points (0.04%) to 1.15%.
Outlook for the CBA share price
The CBA CEO Matt Comyn said that the Australian economy is resilient, supported by low unemployment and strong population growth. The high interest rates are hurting growth and consumer spending, and putting pressure on some households and businesses.
The bank is optimistic about the medium-term, with a strong balance sheet combined with its “strong organic capital generation”, which means it can support customers through challenging times.
CBA continues to perform strongly despite the headwinds of competition, higher rates for depositors and rising arrears.
I wouldn’t want to invest at this stage – strong profit growth seems unlikely, there are other ASX dividend shares that I believe can deliver better capital growth and better dividends over time.
