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How did the CBA FY 2020 result compare with expectations?

The Commonwealth Bank of Australia (ASX: CBA) share price is edging lower on Wednesday afternoon following the release of its full year results.

At the time of writing the banking giant’s shares are down almost 0.5% to $74.37.

How did Commonwealth Bank perform?

In case you missed it earlier, here’s a summary of how Commonwealth Bank performed in FY 2020:

  • Operating income of $23,758 million, up 0.8% on the prior corresponding period.
  • Net interest margin declined 2 basis points to 2.07%.
  • Home lending growth at 1.3x system and household deposit balance growth of 9.8%.
  • Statutory net profit after tax including discontinued operations of $9,634 million, up 12.4% on FY 2019. This statutory result includes significant gains on the sale of businesses.
  • Cash net profit after tax from continuing operations down 11.3% to $7,296 million. This was driven largely by higher COVID-19 loan impairment expense.
  • Final fully franked dividend of 98 cents per share, representing a dividend payout ratio of 49.95%. This is in line with APRA’s guidance that banks should retain at least 50% of earnings.
  • CET1 ratio of 11.6%, comfortably ahead of APRA’s ‘unquestionably strong’ benchmark of 10.5%.

How does this compare to expectations?

According to a note out of Goldman Sachs, Commonwealth Bank’s cash earnings from continuing operations were 2.2% below its expectations. It notes that this was partly due to a 3 basis point miss on its net interest margin and weaker trading/other income.

Positively, its dividend was better than the broker expected. Goldman had been expecting a final dividend of 90 cents per share. It was also expecting a lower CET1 ratio of 11%.

The banking giant’s asset quality surprised the broker. Commonwealth Bank’s bad and doubtful debts charge to loans ratio was 49 basis points in the second half, well short of Goldman’s forecast for 57 basis points.

Looking ahead, Goldman appears happy with the bank’s prospects in respect to its asset quality.

It commented: “The economic assumptions used by CBA to come up with its provisioning appear to have remained relatively unchanged versus its 3Q20 trading update, with 2020 GDP growth remaining at -6.0% (compares to current GSe of -4.0%), unemployment at 9.0% (GSe 8%) and a 12% fall in house prices (GSe -5%).”

“Forward indicators of asset quality were mixed: new impaireds were down 2% hoh (hardly surprising given loan deferrals), the balance of impaireds was up 5% hoh, with gross impaired assets + corporate troublesome loans up hoh to A$8.7 bn (A$7.8 bn in pcp and hoh). Mortgage arrears increased by 2bp hoh but down 5bp on pcp,” it added.

Nevertheless, despite the bank ticking quite a few boxes in FY 2020, it isn’t enough for Goldman to change its rating on Commonwealth Bank shares. It has held firm with its sell rating and $65.25 price target.

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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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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