The Commonwealth Bank of Australia (ASX: CBA) share price is under the spotlight after the ASX bank share reported its FY24 half-year result.
Result highlights
Here are some of the main highlights from the HY24 report for the six months to 31 December 2023, compared to HY23:
- Pre-provision profit fell 3% to $7.64 billion
- Loan impairment expense decreased by $96 million
- Cash net profit after tax (NPAT) fell 3% to $5.02 billion
- Statutory net profit dropped 8% to $4.84 billion
- Interim dividend per share up 2% to $2.15
- Net interest margin (NIM) of 1.99%, down 0.11% year on year and down 0.06% compared to FY23 second half
CBA revealed that its operating income was flat at $13.65 billion, which was supported by volume growth and higher volume-based fee income, but it was offset by profit margin compression.
Operating expenses increased 4% to $6 billion because of inflation and additional technology spending to support the delivery of its strategic priorities, partly offset by productivity initiatives.
CBA revealed that deposit funding remained at 75% of total funding, satisfying a large portion of its funding requirements from retail, business and institutional customer deposits.
While arrears of home loans overdue by at least 90 days were up to 0.52%, it was the same in December 2021. Arrears at December 2022 were 0.43% and 0.47% at June 2023. The performance of this statistic could bey key for CBA shares and profit over the next 12 months.
CBA dividend and balance sheet
CBA ended December with a common equity tier 1 (CET1) capital ratio of 12.3%. The bank said it’s well-positioned to support customers and the broader economy.
The bank increased its cash net profit dividend payout ratio to 72%, enabling the payment of the interim dividend of $2.15 per share. It’s targeting a full-year payout ratio of between 70% to 80% of cash net profit. The ex-dividend date for this is 21 February 2024, so investors have less than a week to buy shares to get this dividend.
Outlook for CBA shares
The CBA CEO Matt Comyn said the economy has been “fairly resilient”, supported by a strong labour market, savings and repayment buffers, population growth and relatively high commodity prices.
However, “downside risks are building as slowing demand and persistent inflation impact Australian businesses”.
The bank is expecting financial strain to continue in 2024, with an uptick in arrears and impairments. But, CBA is “well-provisioned and capitalised”.
2024 could be a tricky year for banks if arrears rise, but so things seem to be going better than feared.
At this high price, I wouldn’t call CBA shares a buy – its profit is going down, not up. The strong rally of the CBA share price (and price/earnings ratio (p/e ratio)) seems premature to me, particularly with competition remaining strong – competition could stick around for beyond the foreseeable future.
In my mind, there are other ASX dividend shares out there which offer better growth than CBA (at a relatively better price), so I’d rather invest in those.
