Commonwealth Bank (ASX:CBA) share price in focus following Q3 results

The Commonwealth Bank of Australia (ASX:CBA) share price will be on watch today after the release of its third quarter update…

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All eyes will be on the Commonwealth Bank of Australia (ASX: CBA) share price on Wednesday.

This follows the release of the banking giant’s third quarter update this morning.

How did Commonwealth Bank perform in the third quarter?

For the three months ended 31 March, Commonwealth Bank reported an unaudited statutory net profit after tax of $2.4 billion.

The company’s cash net profit after tax also came in at $2.4 billion, which represents a 24% increase over the quarterly average recorded during the first half of FY 2021.

Management advised that this was driven largely by lower loan impairment expenses and a 2% increase in income. The latter was the result of above system core volume growth, improved margins, and higher non-interest income.

Commonwealth Bank’s loan impairment expense was significantly lower in the quarter as an improved economic outlook resulted in a reduction in collective provisioning levels. Nevertheless, management advised that provision coverage remains strong and continues to reflect a cautious approach to managing risks as the economic recovery from COVID-19 continues.

The bank’s expenses increased 1% for the quarter excluding remediation costs and 2% including them. This reflects a stronger investment spend profile and higher volume related costs, partly offset by the benefits of ongoing business simplification and two fewer days in the quarter.

This ultimately led to Commonwealth Bank finishing the period with a customer deposit funding ratio of 75% and a CET1 ratio of 12.7%. The latter was up 10 basis points for the quarter despite the payment of its interim dividend during the period.

In light of this surplus capital position, management notes that it creates flexibility for the Board to consider capital management initiatives. However, the timing and extent of any such initiatives is dependent upon a continued trend of domestic economic improvement, its ongoing assessment of portfolio credit quality, and regulatory guidance. This could potentially give the Commonwealth Bank share price a boost today.

Management commentary

Commonwealth Bank’s Chief Executive Officer, Matt Comyn, was pleased with the quarter.

He said: “The Bank remains well placed to support our customers and the broader community as the economic recovery from COVID-19 continues. Our disciplined focus on operational excellence was reflected in continued strong operational performance in the March quarter. This was highlighted by strong home loan funding volumes, particularly through our proprietary network, and business lending continuing to grow at greater than three times system levels.”

Credit quality across our lending portfolios remained sound. While it is pleasing to see that the vast majority of customers have smoothly transitioned from the Bank’s COVID-19 temporary loan repayment deferral program as it concluded in March, we continue to offer ongoing assistance to those in need.”

“Capital and balance sheet strength were maintained, with our CET1 ratio up 10 bpts to 12.7% notwithstanding $2.7 billion (-59 basis points of CET1) in 1H21 interim dividend payments to ~880,000 shareholders. We have made good progress on our strategic agenda and looking ahead, we will continue to focus on differentiating our proposition through reimagined products and services to build tomorrow’s bank today for our customers,” he concluded.

The Commonwealth Bank share price is up 13% year to date. Shareholders will no doubt be hoping that today’s update is enough to extend these gains today.

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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. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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