CBA yearly profit set to fall below $10 billion

The Commonwealth Bank is tipped to post full-year cash profits of more than $9.7 billion this week, a slight decline on last year’s record, as customers move their cash to higher-yield savings accounts, putting a squeeze on the bank’s profit margins.

Investors are highly anticipating the release on Wednesday of CBA’s full-year results, which are widely seen as a bellwether for the health of the broader economy.

CBA chief executive Matt Comyn will release the bank’s full-year results on Wednesday. Credit: Oscar Colman

The consensus is for the nation’s largest bank, and the ASX’s biggest stock, to report a $9.77 billion net cash profit, down five per cent on its record $10.2 billion profit last financial year.

Analysts say while competition for home loans remains high, it has eased over the past six to 12 months, with most banks ending their cashback offers to return their mortgage book returns to the desired position.

CBA’s net interest margin, a measure of profitability comparing banks’ funding costs with what they charge for loans, is expected to fall to two per cent.

“What people are hopeful to see is a moderation in terms of margin pressure easing across the banks,” said Jarden analyst Jeff Cai, who expects cash profit to dip to $9.86 billion, one per cent above consensus.

“[The results] overall should show things are holding up pretty well [in the broader economy]. We would see higher arrears, but in terms of net losses for banks, it remains quite resilient given the fact we still have a supportive unemployment rate, house prices are going up … and you’re not seeing mortgage repossessions.”

Releasing the half-year results in February, CBA chief executive Matt Comyn warned late payments were likely to increase this year. Home loan arrears remained below the historical average but had risen from 0.8 per cent in December 2022 to 1.1 per cent a year later.

UBS banking analyst John Storey said customers switching to high-interest term deposits and savings accounts was weighing on the bank’s profit margins. He was also expecting the CBA to report bad debts of $498 million, ten per cent above consensus.

“A key focus of the result will be signs of a stronger-than-expected NIM from a normalisation in competition, reduced cost of deposit mix changes, and benefit of replicating portfolio,” UBS wrote in a note this month.

Citi said the commentary on banks’ net interest margin would “prove more optimistic than market anticipates”, but noted CBA and Westpac were better placed than their rivals. Its estimates for CBA’s cash profit is in line with consensus, but is expecting the bank’s loan growth in the second half to be stronger than expected, with total loans tipped to hit $940 billion.

“We think a combination of easing mortgage pressures, stalled deposit pricing and switching, and better earnings on the replicating portfolio could deliver better than expect NIM commentary,” Citi research stated. “And after all, rate rise or no rate rise, it’s a game of expectations.”

The bank is expected to pay a full-year dividend of $4.50 a share, flat on last year’s result.

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