Commonwealth Bank of Australia (ASX: CBA) shares will be in focus on Wednesday after the banking giant released its full year results.
Let's see how the bank performed during FY 2024.
CBA shares on watch following strong results
- Operating income flat at $27,174 million
- Operating expenses up 3% to $12,218 million
- Pre-provisioning profit down 2% to $14,956 million
- Cash net profit after tax down 2% to $9,836 million
- Net interest margin (NIM) down 8 basis points to 1.99%
- Final dividend of $2.50 per share (FY 2024 dividend up 3% to $4.65)
What happened during the 12 months?
For the 12 months ended 30 June, CBA reported operating income of $27,174 million, which was flat on the prior corresponding period.
This reflects a small decline in income from its retail banking and New Zealand operations, which offset income growth from its business and institutional operations.
CBA's key Retail Banking division posted a 3% decline in income to $12,790 million due to lower margins from competition and unfavourable deposit mix, partly offset by volume growth. Whereas its New Zealand division reported a 5% decline in income for similar reasons.
The star of the show was CBA's Business Banking division, which posted a 4% increase in income to $8,573 million. This reflects volume growth, which was partly offset by lower margins due to competition.
It was a similar story for its Institutional Banking division, which posted a 3% lift in income to $2,506 million. This reflects higher deposits income, higher equity earnings, and favourable asset mix, which was partly offset by lower lending and leasing margins.
Higher costs, lower profits
CBA's operating expenses increased 3% in FY 2024 due to higher inflation impacting staff costs, additional technology spend to support the delivery of strategic priorities, and lower one-off items.
This ultimately led to Australia's largest bank posting a 2% decline in cash net profit after tax to $9,836 million.
Nevertheless, this profit decline didn't stop the bank's board from declaring a fully franked final dividend of $2.50 per share. This brought its total dividends to $4.65 per share, which represents a 3% increase on last year's payout.
Management notes that this increase has been supported by its share buyback. It points out that the lower share count from the ~$9.3 billion of buybacks completed since FY 2022 has contributed an additional ~26 cents to its FY 2024 dividend per share at the current payout ratio.
What else should you know?
Other key metrics of note are its NIM and credit quality.
In respect to its NIM, this was down 8 basis points to 1.99% in FY 2024. The company notes that this was largely due to the impact of competition and deposit switching, partly offset by higher earnings on replicating portfolio and equity hedges. Pleasingly, its NIM stabilised during the second half of the year and increased 1 basis point half on half.
CBA advised that its loan impairment expense decreased 28% year on year in FY 2024. This reflects its robust credit origination and underwriting practices, rising house prices, and lower expected losses within consumer finance.
However, consumer arrears increased due to the impact of higher interest rates and cost of living pressures on some borrowers. Nevertheless, its home lending portfolio remains well-secured and the majority of home lending customers remain in advance of scheduled repayments.
Provision coverage remains strong at 1.66% of credit risk weighted assets and it maintains a ~$2 billion buffer relative to the losses expected under its central economic scenario.
How does this compare to expectations?
The good news for CBA shares and its shareholders today is that this result appears to be ahead of the market's expectations.
For example, Goldman Sachs was expecting the bank to report a 3.5% decline in cash earnings from continued operations to $9,716 million. Whereas the consensus estimate was $9,783 million.
CBA's cash net profit after tax was only down 2% to $9,836 million.
In addition, the market was forecasting a final dividend of $2.40 per share, whereas CBA declared a $2.50 per share dividend.
Management commentary
CBA CEO Matt Comyn was pleased with the bank's performance. He said:
Our results demonstrate our continued focus on supporting our customers, our disciplined operational and strategic execution, and the strength of our balance sheet.
We have retained strong loan loss provision coverage, with surplus capital and conservative funding metrics. Our disciplined approach to managing our balance sheet settings positions us with flexibility and capacity for a range of economic scenarios, while continuing to deliver sustainable returns.
We have declared a final dividend of $2.50 per share, fully franked, resulting in a full year dividend of $4.65.
And commenting on the bank's outlook, Comyn said:
The Australian economy remains resilient with low unemployment, continued private and public investment, and exports supporting national income. Higher interest rates are slowing the economy and gradually moderating inflation.
Australia remains well positioned but downside risks continue around productivity, housing affordability, as well as ongoing global uncertainty. We will play our part in stimulating economic growth by lending to productive parts of the economy.
We will also continue to invest in our franchise to bring our purpose to life, building a brighter future for all.
CBA shares are up 28% since this time last year.
