The Commonwealth Bank of Australia (ASX: CBA) share price is in focus after reporting profit declined in the third quarter of FY24.
FY24 third quarter update
CBA reported operating income dropped 1%, with there being one less day in the quarter. On a per-day basis, income was flat with lending volume growth offset by “slightly lower margins” and lower income from minority investments and markets.
Operating expenses increased by 2%, caused by higher staff costs and amortisation, partly offset by “productivity initiatives”.
Statutory net profit was around $2.4 billion for the quarter. Cash net profit was also approximately $2.4 billion, which was down 3% on the FY24 first half quarterly average, and it was down 5% on the prior corresponding period (the third quarter of FY23). Profit is the key focus of many investors when it comes to the CBA share price.
CBA reported a loan impairment expense of $191 million, with collective and individual provisions “slightly higher”. The bank said there were moderate increases in both consumer arrears and corporate troublesome exposures.
The ASX bank share said its business lending rose 7.3% on an annualised basis, which was 1.1x the pace of the overall loan system. This was an increase of $2.7 billion in dollar terms. Business transaction accounts increased by around 25,000 in the quarter, it now has more than 1.22 million accounts, up 10% year on year.
Home lending increased by 3.1%, which was only 0.7x the overall loan system. This was a $4.2 billion increase in dollar terms. Household deposits grew by 5.6%, which was an increase of 0.9x the overall banking system – this was a rise of $5.3 billion.
Arrears are rising
CBA revealed what percentage of its loans are in significant arrears (at least 90 days overdue) compared to a year ago.
Personal loans saw an increase from 1.09% of its loan balance being overdue by 90 days at March 2023, to 1.34% at March 2024.
Credit cards saw an increase from 0.51% at March 2023 to 0.68% at March 2024.
Home loan arrears increased from 0.44% at March 2023 to 0.61% at March 2024.
Both credit cards and home loans arrears are still lower than the historical average of the period between August 2008 to June 2023, according to CBA, of 1.25% and 0.65% respectively.
Final thoughts on the CBA share price
Profit is holding up fairly well in this competitive environment, with employment remaining strong in the country. The rising arrears is a concern, as it means more borrowers are struggling and not sending cashflow to the bank. There could be a tipping point if arrears goes too high. Inflation remains higher than the RBA would like, so rate cuts are many months away.
The CBA share price has rallied significantly over the past six months, yet profit is down. I wouldn’t call the CBA share price a good buy at this level, there are other ASX dividend shares I’d rather buy.
