CBA share price on watch following $2.4b third quarter profit

CBA delivered another bumper profit for the three months.

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The Commonwealth Bank of Australia (ASX: CBA) share price will be one to watch closely today.

That's because the banking giant has just released its third quarter update.

Let's see what the bank reported for the three months ended 31 March.

CBA share price on watch following Q3 update

  • Operating income down 1%
  • Operating expenses up 2%
  • Unaudited statutory net profit after tax down 5% to $2.4 billion
  • CET1 ratio of 11.9%

What happened during the quarter?

For the three months ended 31 March, CBA reported a 1% decline in operating income. This reflects one less day in the quarter and slightly lower net interest margins. The latter was driven primarily by continued competitive pressures and customers switching to higher yielding deposits. This was largely offset by higher earnings on replicating portfolio and equity hedges.

CBA's expenses increased 2% due to higher amortisation and staff costs, which were partially offset by productivity initiatives.

This ultimately led to Australia's largest bank reporting an unaudited statutory net profit after tax of $2.4 billion for the three months. This is down 3% on the first half average and 5% on the prior corresponding period.

What else did CBA report?

CBA reported improved momentum in volume growth. This was delivered across home lending and household deposits in the quarter.

It advised that in the Retail Bank, transaction accounts continued to grow with an increase of ~143,000 accounts in the quarter. This was mainly driven by new migrant account openings.

Home loans grew $4.2 billion during the quarter. However, this was at 0.7x system for the three months.

Its proprietary mix for home loans represented 65% of new business flows for the quarter. Household deposits grew $5.3 billion in the quarter.

CBA has been working hard on its business banking operations. It advised that it has continued to build its Business Banking franchise through deep transaction banking relationships.

Business transaction accounts increased by ~25,000 in the quarter to over 1.22 million accounts. This is up 10% on the prior comparative period.

Business lending volumes grew above system at 1.1x for the three months, with diversified growth across multiple sectors.

Rising arrears

Finally, the bank's balance sheet remains strong despite an increase in arrears. It reported a loan impairment expense of $191 million for the quarter, or 8 basis points of average Gross Loans and Acceptances (GLAA).

Home loan arrears increased during the quarter to 0.61% (+9 basis points), as higher interest rates continue to impact some borrowers. Credit card arrears increased during the quarter (+8 basis points) in line with seasonal trends. Personal loan arrears increased (+20 basis points) during the quarter, with elevated arrears observed for customers more susceptible to cost of living pressures.

Management warned that it expects to see further increases in arrears in the months ahead given continued pressure on real household disposable incomes.

Nevertheless, CBA finished the period with a healthy customer deposit funding ratio of 75%, LCR of 138%, and NSFR of 120%.

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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