The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch this morning.
This follows the release of Australia's largest bank's first quarter update.
CBA share price on watch following Q1 update
- Income up 9% over the second half average to ~$6.6 billion
- Expenses up 4.5% excluding remediation
- Cash net profit after tax up 2% to $2.5 billion
- Troublesome and impaired assets down 4.7% to $6.1 billion
- Loan impairments of $222 million
- CET1 ratio of 11.1%
What happened during the quarter?
For the three months ended 30 September, CBA reported a modest 2% increase in cash earnings over the second half average to $2.5 billion. This reflects a 9% jump in operating income, offset by a 4.5% increase in expenses.
CBA's income growth was driven by higher margins and volume growth, partly offset by reduced non-interest income. Household deposits rose 8.6%, home lending grew 6.3%, and business lending increased 12.6% year over year.
Operating expenses excluding remediation were approximately ~4.5% higher than the second half average. This reflects higher staff costs driven by wage inflation, additional working days, and seasonally lower annual leave usage. It was partly offset by lower software amortisation and occupancy costs.
The bank reported net interest income growth of 16%, which was driven by higher deposit earnings, volume growth across core products, the benefit of rising rates on replicating portfolio and equity hedge balances, and 1.5 additional days in the quarter. This was partly offset by the impact of competition and rising rates on lending products.
No details were provided about the widely followed net interest margin (NIM).
How does this compare to expectations?
Unfortunately for the CBA share price today, this update appears to have fallen a touch short of expectations.
Yesterday, analysts at Citi revealed that they were expecting earnings growth of 6%, which was in line with consensus estimates.
Citi commented: "Our 1Q23 cash earnings forecast is in-line with consensus, and we forecast a quarterly NIM of 1.96%, ~9bps ahead of 2H22. At the core earnings line, we expect ~6% core earnings growth in 1Q23 vs the 2H22 average."
Management commentary
CBA's CEO, Matt Comyn, appeared to be happy with the quarter and remains positive on the bank's outlook despite the cost of living crisis. He commented:
Consistent and disciplined execution of our strategy delivered strong financial and operational outcomes in the first quarter of FY23, highlighted by Cash NPAT of approximately $2.5 billion, 12% growth in operating performance and sound portfolio credit quality. In a competitive environment, we remained disciplined and achieved good volume growth in our core markets.
We recognise the concern and pressure many customers are feeling due to the higher cost of living, and increases in the cash rate. As well as providing a range of measures to help these customers, we also supported customers and communities impacted by natural disasters, particularly those affected by recent flooding.
Our strong balance sheet positions us well to continue helping customers achieve their financial goals, consistent with our purpose to build a brighter future for all. The economy has shown resilience in the face of growing cost of living and interest rate pressures and despite these near-term challenges we remain optimistic on the medium to long term outlook.
