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CBA share price rises after Q1 FY20 profit growth

The share price of Commonwealth Bank of Australia (ASX: CBA) is up about 0.7% after the major ASX bank reported growth of its cash profit in the first quarter of FY20 compared to the average quarter profit in the second half of FY19.

CBA announced this morning that continuing cash profit after tax (excluding notable items) rose by 5% to $2.3 billion whilst statutory profit came in at $3.8 billion.

Operating income rose 4%, although only grew 3% when day-weighted, and operating expenses rose 2% excluding notable items due to higher staff costs and higher software amortisation. But excluding the notable items like customer remediation, operating expenses fell 9%.

It was a solid result by CBA considering both National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) reported lower cash profits when removing the effects of the customer remediation.

Whilst CBA did report a higher total figure of $8.12 billion for troublesome and impaired assets, it reported a decline of arrears for personal loans, credit cards and home loans. Whereas NAB and Westpac reported an increase in the 90+ day home loan arrears statistic.

I think this report has proven that CBA is the best-performing big four ASX bank at the moment compared to NAB, Westpac and Australia and New Zealand Banking Group (ASX: ANZ). It managed to keep its CET1 ratio above 10.5% despite paying its FY19 final dividend.

Foolish takeaway

CBA is trading at 16x FY20’s estimated earnings with a grossed-up dividend yield of 7.6%. Commonwealth Bank could be the most dependable bank to own, but I’m still wary of banks with rising troubled loans.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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