The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Wednesday.
This follows the release of the banking giant's first quarter update this morning.
CBA share price in focus after Q1 update
- Unaudited operating income up 3% on prior corresponding period (pcp) but down 1% on the FY 2021 second half quarterly average
- Operating expenses up 4% on pcp but down 1% on second half quarterly average
- Cash net profit after tax of $2.2 billion, up 20% on pcp but down 9% on the second half quarterly average
- Credit provisions broadly unchanged
- CET1 ratio up 19 basis points to 12.5% at 30 September (Now down to 11.2% on a pro forma basis following the recently completed $6bn buy-back)
What happened during the first quarter?
For the three months ended 30 September, Commonwealth Bank reported a 3% increase in operating income over the prior corresponding period. However, this was down 1% over the quarterly average during the second half of FY 2021. Management advised that the latter reflects a 1% increase in net interest income, which was offset by lower non-interest income.
Positively, management advised that the bank's franchise strength and focus on operational execution continued to underpin above system growth in core markets. Household deposits grew at 1.1x system, home lending grew at 1.2x system, and business lending grew 1.5x system.
However, something that could weigh on the CBA share price today is its net interest margin. Management advised that its net interest margin was considerably lower in the quarter. This was driven by higher liquid asset balances, home loan price competition, switching to lower margin fixed rate loans, and the continued impact of a low interest rate environment.
The bank's operating expenses reduced by 1%, driven by lower remediation costs. However, excluding remediation costs, expenses were 3% higher due largely to increasing staff costs from lower annual leave usage during COVID-19 related lockdowns, increased staffing levels in response to higher volumes, and to help deliver on strategic priorities. There were also 1.5 additional days in the quarter.
Finally, on the bottom line, cash net profit after tax in the quarter was approximately $2.2 billion. While this is higher than for the same period last year, it was lower than the second half quarterly average. Though, it is worth noting that the latter period benefited from the release of collective provisions.
This profit appears to have fallen a touch short of the market's expectations. Morgan Stanley, for example, was forecasting a cash profit of $2.28 billion.
Management commentary
Commonwealth Bank's Chief Executive Officer, Matt Comyn, appeared pleased with the bank's performance during the period.
He commented: "Through the first quarter of FY22, our focus has remained on supporting our people, customers and communities as the economy recovers from the impact of COVID-19. Our focus on operational execution ensures we are well placed to provide this support as activity restrictions continue to ease. This was reflected in strong, above-system volume growth in core markets in 1Q22, continued sound portfolio credit quality and balance sheet strength."
"In October, the Bank successfully completed a $6bn off-market share buy-back. Strong demand meant the offer was significantly oversubscribed, representing one of the largest ever tenders into a share buy-back in Australia. Through the buyback and dividends, the Bank has returned over $12bn to shareholders in the past 12 months," he added.
Mr Comyn also notes that the bank has completed its remedial action plan.
He explained: "In October, the Group released the thirteenth and final report from the Independent Reviewer on CBA's Prudential Inquiry Remedial Action Plan, with all milestones assessed as complete and effective and all recommendations now closed. We will ensure that the changes we've made are sustained and continuously improved upon."
"More broadly, we continue to make good progress on our strategic agenda, differentiating our customer proposition with reimagined products and services that help us deliver on our purpose to build a brighter future for all," he concluded.
No guidance has been given for the remainder of the half or the full year.
The CBA share price is up almost 29% in 2021.
