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MarketScreener Homepage  >  Equities  >  AUSTRALIAN SECURITIES EXCHANGE LIMITED  >  Commonwealth Bank of Australia    CBA   AU000000CBA7


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Commonwealth Bank of Australia : Warns of Margin Pressure After Mixed Quarter --Update

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11/11/2019 | 06:40pm EST

By Robb M. Stewart

MELBOURNE, Australia--Commonwealth Bank of Australia (CBA.AU), the country's biggest mortgage lender, has flagged ongoing pressure on margins as record-low interest rates bite.

The warning follows a mixed quarter for the bank in which lending and deposit growth helped buoy income, and expenses declined thanks to no further hits from customer remediation costs, but personal loan arrears remained elevated and impaired assets increased.

Commonwealth Bank, Australia's largest bank by market value, on Tuesday reported an unaudited net profit of about 3.8 billion Australian dollars (US$2.6 billion) for the three months through September, including a A$1.5 billion gain from the sale of its Colonial First State Global Asset Management business. No comparable figure was disclosed, but against a A$2.45 billion profit reported by the bank a year earlier, it represents an increase of about 55%.

However, first-quarter cash earnings--a measure followed by analysts that strips out items including currency hedging volatility and losses or gains on asset sales--were down about 8% from last year at about A$2.3 billion, though the bank said earnings were up 5% on the quarterly average of the prior six months.

Australia's largest banks collectively logged weaker cash earnings over the last financial year as revenue was buffeted by low interest rates, intense competition and a spike in charges for compensating customers for bank failings. Commonwealth Bank's net profit declined for a second year running in the last fiscal year as customer remediation costs swelled and it was hit with higher compliance and wage costs.

Commonwealth Bank, which has a market capitalization of about A$140 billion, said its net interest income in the recent quarter was 3% higher against the average of the previous two quarters, underpinned by volume growth in home and business lending, and household deposits. Yet excluding a tailwind from wholesale funding markets, its net interest margin was lower than in the preceding quarter. The margin, a measure of the difference between what a bank pays to get deposits and funds, and what it charges to lend money, will continue to be squeezed by pressures from low interest rates, it said.

In an effort to stimulate the economy, Australia's central bank has cut its benchmark cash rate to record lows this year. The major banks have each warned of margin pressure, despite resisting government pressure to pass on the rate cuts in full to home-loan customers.

The Sydney-based bank said the credit quality of its lending portfolios remained sound, with a loan-impairment expense for the quarter of A$299 million, unchanged on the last financial year as a proportion of gross loans and acceptances. Still, it said that while consumers falling behind on loan payments improved for the period, personal loan arrears rates remained elevated due to pockets of stress in Western Australia and Melbourne. And troublesome and impaired assets increased to about A$8.12 billion from A$6.61 billion a year earlier.

The bank's closely watched Common Equity Tier 1 capital ratio stood at 10.6% at the end of September, down slightly from June, though the bank said it expected an about 0.6-percentage-point lift to come from previously unveiled asset sales, which put it in a strong position.

In early trading, Commonwealth Bank's shares were up 0.8%, modestly outperforming the other major banks.

Write to Robb M. Stewart at robb.stewart@wsj.com

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Financials (AUD)
Sales 2020 24 597 M
EBIT 2020 13 671 M
Net income 2020 10 390 M
Debt 2020 -
Yield 2020 4,85%
P/E ratio 2020 16,4x
P/E ratio 2021 18,2x
Capi. / Sales2020 6,55x
Capi. / Sales2021 6,50x
Capitalization 161 B
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Technical analysis trends COMMONWEALTH BANK OF AUSTR
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Mean consensus SELL
Number of Analysts 15
Average target price 78,53  AUD
Last Close Price 90,99  AUD
Spread / Highest target -1,09%
Spread / Average Target -13,7%
Spread / Lowest Target -26,4%
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Matthew Comyn Chief Executive Officer, Executive Director & MD
Catherine Brighid Livingstone Chairman
Alan Frank Docherty Chief Financial Officer
Pascal Boillat Chief Information Officer
Shirish Moreshwar Apte Independent Non-Executive Director
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