CBA first quarter earnings flat as margins squeezed

Commonwealth Bank has posted flat first quarter earnings as softer margins were offset by its focus on expenses.

Commonwealth Bank’s Ian Narev. Pic: Renee Nowytarger

Commonwealth Bank has reported flat first quarter earnings as softer margins were offset by its focus on keeping expenses in check.

The nation’s largest company (CBA) said unaudited cash earnings came in at around $2.4 billion through the September quarter, broadly in line with what it reported last year.

CBA also reported statutory earnings of $2.4bn, up marginally on last year’s corresponding $2.3bn reading.

The September quarter results follow the release of yearly numbers from peers ANZ, NAB and Westpac over the past fortnight, with CBA the only major bank working on the traditional Australian financial year schedule.

All three of CBA’s rivals have noted a competitive landscape, with the low interest rate environment and rising funding costs pressuring margins.

CBA verified this viewpoint, noting its key net interest margin was lower in the quarter on “higher funding costs”.

The bank said its credit quality “remained sound” despite pockets of stress in the mining states and the dairy sector in New Zealand.

CBA’s loan impairment expense (LIE) came in at $322 million for the quarter, equating to 18 basis points of gross loans and acceptances.

This was a modest improvement from 19 basis points in fiscal 2016, but up sharply from the $220m reading of the corresponding quarter last year.

Consumer LIE rose in the quarter, CBA added, largely due to “continued stress” in areas of Western Australia and Queensland as the mining booms tails off.

Troublesome and impaired assets were also higher, at $6.8 billion, CBA said.

“(This) reflects ongoing stress in the New Zealand dairy sector.”

The impaired assets number was up $1.3bn on last year’s corresponding figure, while total provisions came in at $3.8 billion.

In a succinct update on its fortunes through the three months to the end of September, CBA said its operating income growth had been weighed by external market factors and higher insurance claims.

“Operating income growth was slightly below that of FY16, impacted by the low interest rate environment, a strengthening Australian dollar and higher insurance claims,” the bank said.

“Banking income growth was solid, supported by strong trading income.”

The banking giant added its expenses had been “well managed” in what it viewed as a “lower growth environment”, while it noted volume growth in core markets was in line with, or above, the market for home lending, domestic business lending and household deposits.

Its wealth management unit reported a 3 per cent rise in assets under management and 2 per cent lift in funds under management, boosted by stronger market performance and positive net flows.

CBA also noted its tier-one capital ratio was at a comfortable 9.4 per cent at September 30.

“After allowing for the increase in risk weighting for Australian residential mortgages and the impact of the 2016 final dividend (which included the issuance of shares in respect of the dividend reinvestment plan), the ratio increased by 34 basis points in the quarter, primarily driven by capital generated from earnings,” the bank said.