Commonwealth Bank of Australia (ASX: CBA) may not be delivering the best returns of the S&P/ASX 200 Index (ASX: XJO) banks in 2022, but it's certainly outpacing the benchmark index itself.
The CBA share price is following the bulk of the market lower today, down 1.6% to $101 per share in late morning trade. This comes on the back of another day of heavy selling in US markets yesterday (overnight Aussie time), with the S&P 500 closing down 3.2%.
Today's selling also sees the CBA share price dip into the red for the calendar year, down 1.1%.
While that's not the result investors would like to see, it's well ahead of the 8.3% year-to-date loss posted by the ASX 200. And let's not forget that CommBank also paid out a $1.75 fully franked interim dividend on 30 March.
So why is the big bank outpacing the index?
Rising rates offering tailwinds to financial shares
One of the biggest factors dragging on ASX shares is the realisation that inflation around the Western world is above central banks' target zones, ushering in a long dormant scenario of rising interest rates.
Higher rates increase the costs of tomorrow's money. And the spectre of a series of rate hikes has hit high growth tech share the hardest. The S&P/ASX All Technology Index (ASX: XTX), for example, is down 33% in 2022.
But the CBA share price has weathered the storm a lot better, alongside most financials. While still down for the year, the S&P/ASX 200 Financials (ASX: XFJ) has only lost 2.7%.
Part of that resilience is that financial shares are among the few sectors that can benefit from higher interest rates.
"Banks and financials tend to perform well in rate hike cycles, this is because higher interest rates are generally beneficial to banks since they allow them to earn more net interest income," said eToro market analyst Josh Gilbert.
EY's banking and capital markets leader, Tim Dring also pointed to higher rates offering a lift to the CBA share price and other bank shares:
While margin compression is likely to continue in the short term, the rising interest rate cycle should ease NIM [net interest margin] pressures and lead to improved profitability for the banks over the medium term.
But it's not all smooth sailing ahead for the banks. "Ongoing economic risks point to continued uncertainty for the banking sector's outlook," Dring added.
And while higher rates do increase the banks' lending margins, they could also result in an increase in bad debts and slower loan growth moving forward.
CBA share price snapshot
Though it's just dipped into the red for 2022, the CBA share price remains up 6.2% over the past 12 months. That compares to a 2.9% loss posted by the ASX 200 over that same period.
