The Commonwealth Bank of Australia Ltd (ASX: CBA) share price closed at $76.80 per share yesterday having slid 6.7% in August alone.
Shareholders in Australia's largest bank have endured a difficult 12 months amid the 2018 Royal Commission and the company's softer-than-expected full-year results earlier this month.
But here's just a few reasons why I think the Commonwealth Bank share price can climb higher in September to outperform the S&P/ASX200 Index (INDEXASX: XJO) this year.
Underlying business is still going strong
Despite reporting a lower net profit of $9.4 million in FY19, Commonwealth Bank's underlying cash profit was only marginally lower than expectations at $8.5 billion.
I think the Commonwealth Bank's decision to avoid paying out excessive special dividends to investors after its $4 billion Colonial First State sale was a wise one as it sets the platform for further growth.
By boosting regulatory capital levels higher, the bank can use FY20 to increase its lending book and drive future profits by being a more streamlined operation.
The regulatory environment looks a whole lot better
The biggest fears surrounding the Big Four banks after the Royal Commission was the likelihood of "structural separation" – basically where the banks aren't allowed to have certain business units due to perceived or actual conflicts.
However, Commissioner Kenneth Hayne did not recommend this and this has been one factor behind the Commonwealth Bank share price recovery in 2019.
The recent court ruling that Westpac Banking Corp (ASX: WBC) could use the benchmark household expenditure measure (HEM) in its lending analysis is a big win for the banks, in spite of ASIC's best efforts.
With a bigger regulatory capital buffer and the license to lend to more customers, Commonwealth Bank looks well-positioned to boost profitability in FY20.
The Aussie housing market has stabilised
The banks remain heavily exposed to the Australian property market, given the significant amount of their loan books that are tied up in residential real estate mortgages.
Fears of a housing collapse appear to have subsided (for now) amid lower rates and broader rebound in property prices in Sydney and Melbourne, meaning the chance of mass-default would appear to be lower in the short-term.
This leaves the Commonwealth Bank in a great position to fight the current low-interest-rate environment and boost its net interest margin (NIM) higher in 2020.
Another factor helping profitability is CBA's lower wholesale funding costs, with the interbank swap rate (BBSW) having dropped significantly in the last 6-12 months, making borrowing cheaper for the bank.
Foolish takeaway
Overall, I think these are just three factors that could make the Commonwealth Bank share price one to watch as an outperformer before the year is out.
The Commonwealth Bank share price has climbed 8.2% so far this year which is about half of the capital gains of the S&P/ASX200 Index in 2019.
However, with technical tailwinds and a strong balance sheet, I think the Commonwealth Bank share price is well-placed to boom before the year is out.
