Commonwealth Bank of Australia (ASX: CBA) released its long-awaited interim results to the market this morning, revealing a record profit (slightly above analyst expectations) and an 8% increase to its half-year dividend.
Despite the result, the shares traded marginally lower shortly after the market's open, retreating 0.4% to $92.25.
So What: Australia's big four banks have enjoyed a period of record profitability in recent years thanks to record low interest rates and strong growth in loans written. That trend continued today with the country's biggest bank reporting an 8% increase in cash profit to $4.623 billion for the first-half, while revenue rose 5% despite subdued market conditions. The company also said that its focus on productivity had helped deliver a further $312 million of cost savings over the last 12 months, which enabled it to post a statutory net profit after tax (NPAT) of $4.535 billion.
The bank said it would pay a fully franked interim dividend of $1.98 per share. While many in the market had been expecting a $2 per share dividend, the amount declared still represents an 8% increase on last year's $1.83 payment.
Here are some of the other highlights from today's report:
- Net interest margin (the profit the banks make on their loans) down 2 basis points to 2.12%
- Customer deposits up $32 billion to $458 billion
- Cost-to-income ratio improved 70 basis points to 42.2%
- Return on equity (cash basis) 18.6%
- Common equity tier 1 capital ratio increased 70 basis points to 9.2% over 12 months
Now What: While there is currently a sense of 'onwards and upwards' for the bank in the market, investors also need to be aware of a "significant economic threat" in the form of weak confidence, according to the bank's CEO Ian Narev, which could impact the bank's performance should more certainty not be given to Australian businesses and households.
In the meantime however, Commonwealth Bank's profits should continue to thrive for the foreseeable future – particularly after the Reserve Bank's decision to slash interest rates further last week. Indeed, the stock will likely also remain a popular target amongst investors thanks to its generous dividend.
