Common problems for Commonwealth

Margins under pressure and growth is hard to come by

a woman

The Commonwealth Bank of Australia (ASX: CBA) has today unveiled another massive annual profit, turning in a result that saw the bank earn over $7 billion for the last financial year, or over $19 million per day.

The seemingly ever-growing headline numbers are usually the focus during bank earnings season, but this year the focus has been increasingly on the anaemic growth of our big lenders and the downbeat assessment of future trading conditions.

Of course, Motley Fool readers won’t be surprised by either of these outcomes, as we’ve been regularly warning that the banks aren’t the compounding machines that investors are used to.

As we’ve mentioned before, housing credit to the private sector is growing only slowly, which doesn’t augur well for a sector which relies on credit growth for part of its top-line expansion. On top of that, moderating house price growth and a new frugality from consumers isn’t great news for these companies.

The CBA profit growth of a little under 4% was slightly ahead of analyst estimates, and much better than the flat profit announced by National Australia Bank (ASX: NAB) yesterday. However, margins are also under pressure, with CBA’s ‘net interest margin’ — a key measure of profitability – falling slightly.

Eyes will now turn to the other two majors, Westpac (ASX: WBC) and ANZ (ASX: ANZ) as they release their next earnings. ANZ has staked much of its future growth on the higher-risk and potentially higher-return expansion into Asia. Done well, it will give ANZ an opportunity to tap into faster growing markets. Executed poorly, and it will be yet another overseas foray gone bad for our banks, as NAB shareholders know only too well.

Foolish takeaway

There’s a price for every asset, and long-term market watchers will know only too well that the share market, like the economy, moves in cycles. Our major banks are still paying healthy, fully-franked dividends, which will be attractive for income investors. The best prices are likely to come when the market accepts that growth has slowed — and before the market remembers that the cycle is likely to see debt growth return — as it always has.

If you’re in the market for some high yielding ASX shares, look no further than our ”Secure Your Future with 3 Rock-Solid Dividend Stocks” report. In this free report, we’ve put together our best ideas for investors who are looking for solid companies with high dividends and good growth potential. Click here now to find out the names of our three favourite income ideas. But hurry – the report is free for only a limited time.

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Scott Phillips is an investment analyst with The Motley Fool. You can follow Scott on Twitter @TMFGillaThe Motley Fools purpose is to help the world invest, better. Take Stock is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691)

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