The Commonwealth Bank of Australia (ASX: CBA) share price will be on watch on Tuesday.
That's because Australia's largest bank has just handed down its first quarter update.
Let's see how the banking giant performed during the three months.
CBA share price on watch following Q1 update
- Operating income flat at $6,822 million
- Operating expenses up 3% to $3,043 million
- Cash net profit after tax up 1% to $2.5 billion
- CET1 ratio up 46 basis points to 11.8%
For the three months ended 30 September, CBA's operating income was flat compared to the prior corresponding period. Management advised that this reflects a 0.5% increase in net interest income, offset by lower other operating income.
The bank's net interest income was boosted by 1.5 additional days in the quarter and volume growth, partly offset by lower net interest margins from continued competitive pressure in deposits and customers switching to higher-yielding deposits. Home lending margins stabilised in the quarter.
Operating expenses were up 3% for the quarter, reflecting higher staff costs from wage inflation and higher amortisation. This was partly offset by productivity initiatives.
On the bottom line, an unaudited cash profit of $2.5 billion was reported, which represents a 1% increase over the prior corresponding period and is flat compared to the quarterly average of the second half of FY 2023.
Finally, CBA revealed that its loan impairment expense was $198 million, with collective and individual provisions slightly higher. Pleasingly, portfolio credit quality remained sound, with credit quality indicators still near historic lows.
Management commentary
CBA's CEO, Matt Comyn, believes the bank had a solid quarter. He said:
We have delivered solid financial outcomes in the quarter reflecting our customer focus and consistent operational and strategic execution. Operating performance was underpinned by a disciplined approach to volume/margin management, delivering sustainable shareholder returns in a competitive market.
However, one negative that could weigh on the CBA share price today is news that its arrears are increasing. Comyn said:
We are very conscious that many Australians are feeling under pressure in the current environment. While some remain well positioned, we recognise that others are finding the higher cost of living very tough. Our customers are continuing to take practical steps to navigate through a period of tighter household finances and we are here to help them. As a result, we have seen a modest increase in consumer arrears over recent months. Our balance sheet strength means we are well positioned to support those customers who need it.
Outlook
Speaking about the bank's outlook, Comyn concludes:
The Australian economy remains resilient, supported by low unemployment and strong population growth. Higher interest rates are resulting in slowing growth and consumer spending, with pressure on some households and businesses. We remain optimistic on the medium-term outlook.
Our balance sheet strength combined with our strong organic capital generation allows us to support our customers through challenging times. Strong banks benefit all Australians, and we remain well positioned to continue to support our customers, invest in our communities and provide strength and stability for the broader Australian economy.
