The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch this morning.
This is because Australia's largest bank has just handed down its eagerly anticipated FY 2023 results.
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CBA share price on watch
- Operating income up 13% to $27,237 million
- Operating expenses up 5% to $11,646 million
- Net interest margin (NIM) up 17 basis points to 2.07%
- Cash net profit after tax up 6% to $10,164 million
- Final dividend of $2.40 per share, bringing the full-year dividend to $4.50 per share
For the 12 months ended 30 June, CBA reported a 13% increase in operating income to $27,237 million. This was driven by a combination of NIM improvements and volume growth across the business. The latter saw home lending increase by 5% and business lending jump by 11.4%. This was supported by a 5.2% lift in household deposits and a 2.8% increase in business deposits.
CBA's NIM increased 17 basis points year-on-year to 2.07% due to the rising interest rate environment. This was partly offset by the impact of increased competition, particularly in home lending. Management advised that monthly spot margins peaked in late 2022 and it continues to manage headwinds. CBA's NIM fell 5 basis points during the second half.
The bank's loan impairment expense increased by $1,465 million in FY 2023. This reflects the ongoing cost of living pressures and rising interest rates, and the non-recurrence of COVID-19-related overlay releases in the prior year.
Operating expenses were up 5% to $11,646 million due to inflation and additional technology spending to support the delivery of its strategic priorities and volume growth. This was partly offset by productivity initiatives.
On the bottom line, the bank's cash net profit after tax came in 6% higher year-on-year to $10,164 million. This reflects a strong operational performance, partly offset by higher loan impairment expenses and operating costs.
Pleasingly for shareholders, the bank's capital position and disciplined execution continue to support sustainable returns. This allowed the CBA board to declare a fully franked final dividend of $2.40 per share, which brought its full-year dividend to $4.50. This represents a 16.9% year-on-year increase.
How does this compare to expectations?
The good news for the CBA share price is that the bank's earnings were largely in line with expectations and its dividend was ahead of estimates.
For example, the analyst consensus estimate was for cash earnings of $10,167 million and a $2.24 per share fully franked final dividend.
Management commentary
CBA's CEO, Matt Comyn, was pleased with the bank's performance in a challenging environment. He said:
Our results demonstrate our continued focus on supporting our customers, investing in our communities, and providing strength and stability for the broader economy. It has been an increasingly challenging period for our customers, dealing with rising cost of living pressures.
Our balance sheet resilience allows us to support our customers and deliver sustainable returns for shareholders. The Bank's portfolio quality has remained sound with arrears and impairments below long-term averages, supported by a strong labour market as well as savings and repayment buffers.
Outlook
No guidance was given for FY 2024, but Comyn has warned of "downside risks" and "changing financial conditions." He said:
The Australian economy has been resilient with the tailwinds of a recovery in population growth, relatively high commodity prices and low unemployment. However there are signs of downside risks building as rising interest rates have a lagged impact on mortgage customers and other cost of living pressures become a financial strain for more Australians.
We are seeing consumer demand moderate and economic growth slow and we are closely monitoring the impact of reduced discretionary spend, particularly on our small and medium sized business customers.
We are well provisioned for the changing financial conditions and our strong balance sheet underpins our ability to support our customers and manage headwinds while delivering sustainable returns for shareholders.
Finally, in respect to the bank's all-important NIMs. The company advised that in the next financial year, it expects competition, customer deposit switching, and higher wholesale funding costs to remain margin headwinds, partly offset by the benefit of higher average cash rates.
