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 highly anticipated full year results this morning.
CBA share price on watch after announcing $6 billion share buyback
- Net profit after tax up 19.7% year on year to $8,843 million
- Cash earnings up 19.8% to $8,653 million (versus analyst consensus estimate of $8,464 million)
- Loan impairment expense and provisions down 78% to $554 million
- Net interest margin down 4 basis points to 2.03%
- CET1 ratio up 150 basis points to 13.1%
- Fully franked final dividend of $2.00 per share declared. Full year dividend up 17% to $3.50 per share
- $6 billion off-market share buy-back, which is expected to reduce its share count by ~3.5%.
What happened in FY 2021 for CBA?
The CBA share price could be on the rise today after Australia's largest bank delivered a result ahead of the market's expectations.
For the 12 months ended 30 June, the bank reported cash earnings of $8,653 million. This was 19.8% higher year on year and driven by an improvement in economic conditions and its outlook. This led to lower loan impairment expense and a strong contribution from volume growth in all core markets. The analyst consensus estimate was for cash earnings of $8,464 million in FY 2021.
This strong form was driven by growth across business lending, home lending, and household deposits. Business lending grew over 3x system, home lending was 1.2x system, and household deposits grew 1.2x system.
Holding back its profit growth slightly was a 3.3% increase in operating expenses to $11,359 million. This was driven by its investment in the franchise, higher volumes, and remediation costs. Excluding the latter, operating expenses would have been up 2.4% year on year.
Management also advised that its net interest margin was 2.03%, down by 4 basis points. This was due to higher liquid assets, with the impact of the low-rate environment largely offset by management actions, lower wholesale funding costs, and favourable funding mix.
One positive that could boost the CBA share price today was its loan impairment expense, which fell 78%. The bank has, however, maintained a strong provision coverage ratio of 1.63%. This reflects the economic uncertainty from the continuing impacts of COVID-19.
What did management say?
Commonwealth Bank's Chief Executive Officer, Matt Comyn, was pleased with the bank's greatly improved performance during FY 2021.
He said: "The continuing strength of our businesses, combined with a focus on customer needs, digital engagement and consistent operational excellence has contributed to a strong financial result this year."
"A highlight of the result is our continued balance sheet strength and very strong capital position that has allowed us to support our customers while delivering strong and sustainable returns to shareholders. As a result, a final dividend of $2.00 per share, fully franked, has been determined, with shareholders receiving a full year franked dividend of $3.50."
"Strategic divestments have generated $6.2 billion in excess capital since 2018. Today we have announced an off-market buy-back of up to $6 billion of CBA shares as the most efficient and appropriate way to commence the return of surplus capital, as shareholders will benefit from a lower share count that will support return on equity and dividends per share," he added.
What's next for CBA?
Mr Comyn acknowledges that the pandemic continues to have an impact on the Australian economy. Nevertheless, he believes the bank is prepared for a range of scenarios.
He explained: "As the past 18 months have shown, Australia has a very strong, stable and secure financial system. This includes well-capitalised and strong banks like the Commonwealth Bank, which together with the support of the federal and state governments, regulators and the broader industry, have helped the country through the worst pandemic in living memory."
"We are prepared for a range of different economic scenarios and are well placed to support our customers. We're committed to new and ongoing support measures for those most impacted by COVID-19 and other events. We will continue to work closely with our retail and business customers to understand their needs."
The Chief Executive revealed that this uncertainty won't stop the bank from investing to strengthen its offering and leadership position.
Mr Comyn concluded: "Looking ahead, we anticipate ongoing economic impacts and earnings pressure from lower interest rates. We will continue to invest in the business to reinforce our product offering to our retail and business customers and extend our digital leadership. Through disciplined execution and our people's care and commitment, we will continue to deliver for our customers, community and our shareholders as we build tomorrow's bank today."
CBA share price outperforms in 2021
Prior to today, the CBA share price was up 27% since the start of the year. This is more than double the ASX 200's return over the period. Shareholders will no doubt be hoping today's result and buyback announcement will be enough to extend the CBA share price outperformance on Wednesday.
