Commonwealth Bank of Australia (ASX: CBA) has shed light on its first-quarter trading performance this morning, revealing a small increase in cash earnings during the period.
Here's a quick recap:
- Cash earnings of $2.4 billion
- Statutory earnings of $2.3 billion
- Troublesome and Impaired loans were $5.5 billion
- CET1 ratio of 9.8%
- Loan impairment expense (cash) of 13 basis points
The Results
For the three months ended 30 September 2015, Australia's biggest bank reported unaudited cash earnings of $2.4 billion, up from last year's $2.3 billion result, and broadly in line with the market's expectations of $2.37 billion, according to the Fairfax Press. Unaudited statutory net profit was also $2.3 billion for the period.
Given the bank reported a full-year cash profit of roughly $9.14 billion in the 2015 financial year (FY15), the results imply it could be on track for another record year of earnings.
Competition amongst the big banks continued to weigh on the group's net interest margin (NIM) however, which measures the amount of profit the bank makes on its loans. Although underlying NIM remained stable, the group's overall NIM was slightly lower which the bank attributed to higher liquid assets.
On a more pleasing note, Commonwealth Bank said its troublesome and impaired loans fell to $5.5 billion, compared to $6 billion in the previous quarter. The total loan impairment expense for the quarter was $220 million with the bank saying "Credit quality remained sound, with arrears levels reducing across all consumer portfolios in line with seasonal expectations."
Capital Strength
Commonwealth Bank, together with each of its rivals, were forced to raise additional capital from investors in recent months in order to bolster their reserves as a safeguard against any potential distress in the economy.
Today, the bank said its Basel III Common Equity Tier 1 (CET1) APRA ratio increased 70 basis points to 9.8%, while its Basel III Internationally Comparable CET1 ratio was 13.6% as at 30 September 2015.
Should you buy?
As it was only a quarterly report, Commonwealth Bank's update was nowhere near as in-depth as those provided by rivals National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) recently. However, it's still interesting to note how the bank is tracking so far in FY16.
Although it appears to be on track for another record-breaking year, however, it is clear that growth is slowing down. It's also clear that competition within the sector is continuing to constrict profitability while there is an element of regulatory uncertainty going forward.
Although the bank's shares are hovering well below their high levels recorded earlier this year, I still believe they're expensive based on the headwinds facing the industry, which could hinder the bank's ability to grow. I won't be buying Commonwealth Bank shares anytime soon, and believe there are far greater alternatives currently on offer.
