It is a tough day for S&P/ASX 200 Index (ASX: XJO) banks as many of them are down. The Commonwealth Bank of Australia (ASX: CBA) share price is currently down around 8%.
Looking at the other larger players:
The Westpac Banking Corp (ASX: WBC) share price is down 1.4%
The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is in the red by 1.8%.
National Australia Bank Ltd (ASX: NAB) has seen its share price drop 1.2%.
The Bank of Queensland Limited (ASX: BOQ) share price has declined by 1%.
Why are the ASX 200 banks suffering?
Sometimes a business, like CBA, may come out with an update and then investors decide to treat other businesses in the same industry with the same (but lesser) reaction.
CBA did just release a trading update for the first quarter of FY22.
It said that it made statutory net profit of $2.3 billion and cash net profit of $2.2 billion. Year on year, cash net profit was up 20%, though down 9% compared to the FY21 second half quarterly average. Before provisions, profits were stable.
In this quarter, CBA experienced a loan impairment expense of $103 million, or 5 basis points of average gross loan acceptances.
What's capturing some headlines was that income was down 1%, or flat excluding the divestment of Aussie Home Loans, with above system loan growth helping to offset "continued margin pressures and lower non-interest income."
Net interest margin (NIM)
Going into more detail, CBA said that its NIM was "considerably lower" in the quarter.
The major bank said that drivers of the decline included higher liquid asset balances, home loan price competition and switching to lower margin fixed rate loans, as well as the continued impact of the low interest rate environment.
CBA's NIM plays an important role in its overall profitability. In the second half of FY21, its quarterly average net interest income made up $4.73 billion of the overall $6.1 billion operating income.
Other ASX 200 banks also warning on the NIM
The low interest rate environment has been something that the other banks have also been warning about.
When NAB released its FY21 result, it disclosed that in the half-year to September 2021, the net interest margin (NIM) dropped 5 basis points to 1.69%. NAB outlined there were competitive pressures impacting housing lending margins, the impact of changes in customer preferences towards lower margin fixed rate housing loans and a lower earnings rate on deposits and capital due to the low interest rate environment.
Westpac also talked about the margin pressures it is feeling. In FY21, Westpac's NIM fell by 4 basis points to 2.04%. Westpac CEO Peter King said that margins were down in a competitive, low-rate environment.
CBA positive on the future
Despite the margin challenges that CBA is experiencing at the moment, the CEO Matt Comyn continues to be positive about the outlook:
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.
