CBA share price on watch amid strong profit growth and $1b buy-back

Rising interest rates have given the performance of Australia's largest bank a big boost…

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Key points

  • CBA has released its half year results
  • Australia's largest bank delivered a 9% increase in cash profit
  • This allowed the bank to increase its dividend by 20% and increase its buy-back by $1 billion

The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Wednesday.

This follows the release of the banking giant's half year results this morning.

CBA share price on watch amid strong growth

  • Operating income up 12% to $13,593 million
  • Cash net profit up 9% to $5,153 million
  • Net interest margin lifted 18 basis points to 2.10%
  • Interim dividend increased 20% to $2.10 per share
  • CET1 ratio of 11.4%
  • Buy-back increased by $1 billion

What happened during the half?

For the six months ended 31 December, Australia's largest bank reported a 12% jump in operating income to $13,593 million. This was driven by volume growth in core products, a recovery in its net interest margin, partly offset by a decrease in other operating income.

CBA's net interest margin increased 18 basis points year over year to 2.10%. This reflects higher earnings on deposits, replicated products, and equity hedges in a rising rate environment, partly offset by increased competition.

Operating expenses were well controlled during the half and increased 5% to $5,773 million. This increase reflects wage and supplier inflation and higher information technology costs and remediation, which were partly offset by productivity initiatives.

On the bottom line, CBA's cash net profit after tax came in 9% higher year over year at $5,153 million. This was driven by its strong operational performance, a rising rate environment, and higher loan loss provisioning.

This allowed the CBA board to increase its interim dividend by 20% to a fully franked $2.10 per share. This represents a 69% payout ratio and reflects the bank's continued capital and balance sheet strength.

One slight negative was the bank's loan impairment expense, which increased by $586 million. Management blamed ongoing inflationary pressures, rising interest rates, supply chain disruptions, and house price weakness.

Management commentary

CBA's CEO, Matt Comyn, was pleased with the bank's performance. He commented:

We continue to invest in our technology and businesses to improve our customers' lived experience and solve their unmet needs. This focus is a key driver of strong organic growth across all of our businesses

Higher interim cash profits were a result of volume growth and the recovery in our margins as cash rates rise from historic lows. The result was further supported by sound portfolio credit quality.

Our continued balance sheet strength and capital position creates flexibility to support our customers and manage potential economic headwinds, while delivering predictable and sustainable returns to shareholders. As a result, a higher interim dividend of $2.10 per share, fully franked, has been determined. We continue our long-term approach to capital management by announcing an intention to increase our on-market share buy-back by an additional $1 billion.

How does this compare to expectations?

The good news for the CBA share price today is that this result appears to be largely in line with expectations.

For example, Goldman Sachs was expecting cash earnings of $5,108 million and an interim dividend of $2.12 per share.


CEO Matt Comyn appears cautiously optimistic on the future. While highlighting that the cost of living is putting "significant strain" on Australian households, he notes that consumer spending remains resilient and the "fundamentals of the economy remain solid."

Commenting on the bank's outlook, he added:

We expect business credit growth to moderate and global economic growth to slow during 2023. However, we remain optimistic that a soft landing for the Australian economy can be achieved and positive on the medium-term outlook for Australia. The Bank remains well provisioned and capitalised to continue to support Australian households and businesses.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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