Investors may feel somewhat underwhelmed this morning after Commonwealth Bank of Australia (ASX: CBA) released an earnings update for the three months ended 31 March 2015.
Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have already released their half-year earnings reports this week, both of which contained valuable material regarding the state of the big four banks. As Commonwealth Bank's was only a quarterly report, the update left much to the market's imagination.
Commonwealth Bank, which is Australia's largest bank, said that its unaudited cash earnings for the quarter were approximately $2.2 billion, giving it a cash profit of roughly $6.82 billion for the first nine months. That puts it well and truly on track to top the $8.68 billion cash earnings recorded in the 2014 financial year. However, the bank's statutory net profit was also $2.2 billion, down from $2.3 billion during the same period last year.
The bank said that its net interest margin (the profit it makes on its loans, and a key measure of bank profitability) continued to be impacted by competitive pressures as each of the banks fight tooth and nail for new customers in the low interest rate environment. Meanwhile, expense growth was also higher in the quarter and home lending volume growth continued to track slightly below system, although credit quality remains sound.
In a separate presentation, Commonwealth Bank showed that troublesome and impaired assets continued to decline, although only marginally. In total, these assets declined just 1.5% from the prior quarter which could certainly indicate that the steady decline in bad debt charges is nearing an end.
While the decline in net profit for the quarter compared to the prior corresponding period will come as a concern for investors, so too should the lack of information spared by Commonwealth Bank – particularly after the lacklustre half-year report from Westpac on Monday, and indications from the Reserve Bank that interest rates may have been cut for the last time yesterday.
Each of the big four banks declined from their intraday highs after the RBA slashed rates by 25 basis points with many investors jumping out of the overpriced stocks before others in the market could do the same. While we may be provided with greater insight into how the banks are actually tracking when National Australia Bank Ltd. (ASX: NAB) reports its interim earnings tomorrow, the lack of information provided by Commonwealth Bank could ultimately be just as useful.
