We're now in the thick of reporting season, and after seeing a few different results, I think owners of Commonwealth Bank of Australia (ASX: CBA) shares can be very happy with what's happened.
It's a difficult operating environment for ASX bank shares, with competition for lending and deposits, an elevated level of financially stressed borrowers, and reduced credit demand.
It's often said that CBA trades at a much higher relative valuation than other names like Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), and ANZ Group Holdings Ltd (ASX: ANZ).
But, after seeing the latest updates from some banks, I think CBA can say the difference is (at least) mostly justified.
Profit growth
The key thing that investors want to see is profit growth because that's largely what they value a business on.
In the first half of FY25, CBA reported that its statutory net profit after tax (NPAT) of $5.1 billion was up 6% in the first half of FY24 and up 11% in the second half of FY24. The cash net profit of $5.1 billion increased 2% year over year and rose 7% half over half. Profit (growth) is a major factor for CBA shares.
It wasn't so good in two of the most recent bank results.
NAB reported cash earnings of $1.74 billion in the first quarter of FY25, which represented a 2% decrease compared to the FY24 second-half quarterly average. NAB's statutory net profit also declined by 2%.
Bendigo and Adelaide Bank Ltd (ASX: BEN) recently reported its FY25 first-half result, and that update showed cash earnings after tax of $265.2 million, down 1.1% year over year and down 9.7% half over year. The statutory net profit of $216.8 million was down 23.2% year over year and down 17.5% half over half.
Both Bendigo Bank and NAB reported that their net interest margins (NIMs) declined during their reporting periods. Meanwhile, CBA told investors the NIM increased slightly to 2.08%. The NIM is important because it shows investors how much profit banks are making on their lending, including the cost of funding.
I think it's impressive that CBA managed to deliver a rise in profitability while other banks have seen their margins fall. That's a strong support for CBA shares.
Solid loan book
One of the most impressive things about CBA, in my view, is that the ASX bank's loan book is performing well. It has been disciplined in what loans it has written.
In CBA's result, it said its loan impairment expense was $320 million, down 23% year over year and down 17% half over year. The bank explained why this was the case:
Loan impairment expense decreased reflecting our disciplined credit origination and underwriting practices, rising house prices, and lower expected losses within consumer finance. Consumer arrears remained broadly stable, supported by tax refunds and changes to income tax rates and thresholds. Our home lending portfolio remains well-secured and the majority of home lending customers remain in advance of scheduled repayments. Provision coverage remains strong at 1.62% of credit risk weighted assets and a ~$2.4 billion buffer relative to the losses expected under our central economic scenario.
Meanwhile, NAB's credit impairment charge was 38% higher year over year. The bank also reported that its ratio of non-performing exposures to gross loans and acceptances increased by 4 basis points (0.04%) from September 2024 to 1.43%. NAB explained that this mainly reflected further deterioration in its business and private banking and higher arrears for the Australian mortgage portfolio. In other words, NAB's loan book is facing difficulties.
Overall, I think CBA shareowners can be pleased with how their bank is performing compared to the competition.
