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CBA records steady first-quarter cash earnings

Nicholas Grove  |  08 Nov 2016Text size  Decrease  Increase  |  

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Commonwealth Bank of Australia posts a flat first-quarter cash profit after higher funding costs see group net interest margins decline.


Commonwealth Bank of Australia (ASX: CBA) on Tuesday said its cash earnings before one-offs for the first quarter ended September stood at around $2.4 billion, unchanged on the same quarter in fiscal 2016.

Statutory net profit, including non-cash items, was also approximately $2.4 billion, the bank said in a statement to the ASX.

CBA said the low-interest-rate environment, a stronger Australian dollar and higher insurance claims meant the operating income growth rate was slightly below the rate achieved in fiscal 2016.

However, the banking operations recorded "solid" income growth on the back of strong trading income, the bank said.

Group net interest margin--the difference between the interest income generated by the bank and the amount of interest paid out to lenders--was lower in the quarter due to higher funding costs, CBA said.

Morningstar head of Australian banking research David Ellis said CBA's cash profit was line with consensus and modestly below the quarterly run rate required to reach his unchanged fiscal 2017 cash profit forecast of $9.8 billion.

"Quarterly trading updates can be volatile and we anticipate good loan and deposit volumes, modestly lower net interest margins, improved trading income and good cost control in fiscal 2017 and 2018 to partially offset higher bad debt expenses," Ellis said.

The bank said costs were "well managed" in the quarter, which resulted in "positive jaws" (operating income exceeding operating costs).

Volume growth remained either broadly in line with or ahead of system in home lending, domestic business lending and household deposits across key markets, CBA said.

The bank said credit quality within its lending portfolios remained sound, with bad debt charges of $322 million in the quarter equating to 18 basis points of gross loans. This compared to 19 basis points in fiscal 2016.

CBA said its funding and liquidity positions remained strong, with customer deposit funding at 66 per cent and the average tenor of the wholesale funding portfolio at 4.3 years.

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Nicholas Grove is a Morningstar journalist.

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