The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch closely on Wednesday.
This follows the release of the banking giant's full year results this morning.
CBA share price on watch amid strong cash profit growth
- Revenue up 3% year over year to $25,143 million
- Net profit after tax up 6% to $10,771 million
- Cash earnings up 11% to $9,595 million
- Fully franked final dividend of 210 cents per share
- Net interest margin (NIM) down 18 basis points to 1.9%
- CET1 ratio of 11.5%
What happened in FY 2022?
For the 12 months ended 30 June, CBA reported a 3% increase in revenue to $25,143 million and an 11% lift in cash earnings to $9,595 million.
This was driven by a solid operational performance and volume growth in core businesses, as well as sound credit quality and the reduction of provisions related to COVID-19. The bank's operating expenses fell 1.5% to $11,190 million.
In respect to volume growth, CBA reported home lending growth of 7.4% (but 0.9 times system growth), household deposit growth in line with system at 13.2%, business lending growth of 13.6%, and business deposit growth of 15.1%. The latter two were 1.3 times and 1.4 times system growth, respectively.
CBA's NIM declined 18 basis points year over year to 1.9%. This was due to a large increase in low yielding liquid assets and lower home loan margins. The good news, though, is that management's medium term outlook remains unchanged. It expects margins to increase in a rising rate environment.
In light of the above, the CBA board declared a final fully franked dividend of 210 cents per share. This will be payable on or around 29 September to shareholders on the company's register at the close of play on 18 August. For the full year, this brought the CBA dividend to 385 cents per share, which was up 10% year over year.
How does this compare to expectations?
The good news for the CBA share price is that this result appears to have come in largely ahead of expectations.
According to a note out of Goldman Sachs, its analysts were forecasting cash earnings of $9,509 million and a fully franked dividend of 380 cents per share in FY 2022.
Based on this, CBA has beaten on both cash earnings and dividends.
Management commentary
CBA's Chief Executive Officer, Matt Comyn, was pleased with the company's performance. He said:
By focusing on serving our customers and maintaining disciplined operational and strategic execution, we have delivered a strong financial result for our shareholders.
We have focused on strengthening our customer engagements and relationships, and this has resulted in further growth in our core deposit and lending volumes to retail, business and institutional customers.
Our operating performance was higher as a result of this continued volume growth and profitability was further supported by sound portfolio credit quality.
In respect to its credit quality, CBA's loan impairment expense decreased $911 million in FY 2022 to a benefit of $357 million. This was driven by reduced COVID-19 overlays, partly offset by increased forward-looking adjustments for emerging risks including inflationary pressure, supply chain disruptions, and rising interest rates.
Outlook
Comyn was cautiously optimistic on the future. He commented:
Against many measures, Australian households and businesses are in a strong position given low unemployment, low underemployment, and strong nonmining investment. However inflation is high, and we have seen a rapid increase in the cash rate which is negatively impacting consumer confidence. We expect consumer demand to moderate as cost of living pressures increase.
It is a challenging time, but we remain optimistic that a path can be found to navigate through these economic conditions. We remain of the view that the medium term outlook for Australia is a positive one. Our purpose, to build a brighter future for all, reflects the role we play in supporting our customers and the domestic economy during periods of uncertainty.
We continue to invest in our business, to reinforce our customer propositions and extend our digital leadership position.
