The Commonwealth Bank of Australia (ASX: CBA) share price hasn't done that well compared to some other ASX bank shares.
Looking at the returns, in 2022 the CBA share price has gone up 0.40%.
Let's put this into context. The S&P/ASX 200 Index (ASX: XJO) dropped around 7% over the year.
It has certainly done better than the ASX 200. The bank has also outperformed some of the other bank shares.
The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price has dropped around 14%.
But, the Westpac Banking Corp (ASX: WBC) share price has risen by 8% and the National Australia Bank Ltd (ASX: NAB) share price has gone up 2.2%.
It has been a mixed bag for other ASX bank shares as well. The Bank of Queensland Limited (ASX: BOQ) share price has fallen more than 16%, the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has climbed around 6% and the MyState Limited (ASX: MYS) share price has fallen 22%.
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2022 was a mixed year
In the first half of the 2022 calendar year, CBA was having to deal with sinking profit margins. The bank reported that in FY22, its net interest margin (NIM) had fallen to 1.9%, after an 18 basis point drop. This was due to a "large increase in low yielding liquid assets and lower home loan margins" amid the record low interest rate.
Despite that, the bank was able to report an 11% increase in cash net profit after tax (NPAT) to $9.6 billion thanks to "operational performance and volume growth in core businesses".
Impressively, the business reported 7.4% growth of home lending and 13.6% growth of business lending.
The profit growth enabled a 10% increase of the annual dividend to $3.85 per CBA share.
Rising interest rates
In the bank's outlook statement in the FY22 result, it said that Australian households and businesses are in a "strong position given low unemployment, low underemployment, and strong non-mining investment".
While it warned of the negative impact of higher interest rates on consumer confidence, the business told investors that it expected its lending profit margins to increase in the rising interest rate environment.
Indeed, in the FY23 first quarter, the largest ASX bank share was able to tell investors that its income rose 9%, which was helped by higher margins and volume growth. However, cash net profit only grew by 2%.
In that quarter, CBA saw home lending grow by 6.3%, while business lending jumped 12.6%.
How could 2023 go?
I think that CBA is going to report a sizeable increase in profitability in 2023. The rising interest rates could be a very helpful boost to profit.
CBA noted in its FY23 first quarter update that "portfolio credit quality remained sound, with favourable trends in key credit quality indicators".
I believe that CBA shares will be able to grow its dividend again for investors in 2023.
Based on (independent) numbers on Commsec, CBA shares could offer a FY23 grossed-up dividend yield of 6.2%.
However, I also think it's quite possible we could see an increase in the loan arrears. If some borrowers can't absorb the higher interest rates, then this could lead to worsening arrears and then higher bad debts.
While I think the CBA profit will improve in FY23, I'm not sure whether the CBA share price will show as much improvement from here.
