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CBA posts 5.7pc rise in 1Q earnings

Nicholas Grove  |  07 Nov 2012Text size  Decrease  Increase  |  

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Nicholas Grove is a Morningstar journalist.

 

Commonwealth Bank of Australia (CBA) on Wednesday announced unaudited cash earnings of $1.85 billion for the first quarter of fiscal 2013, up 5.7 per cent from $1.75 billion in the first quarter of fiscal 2012.

Statutory net profit on an unaudited basis for the same quarter was approximately $1.8 billion, the bank said in a statement.

Morningstar Asia Pacific Equity Research head of financial services, David Ellis, described the rise in cash earnings as "impressive" and said the result was consistent with his full-year forecast of $7.4 billion in earnings.

"Financial strength and conservative settings support our narrow moat rating for Australia's largest bank," he said.

Revenue growth in the quarter continued to reflect a combination of conservative business settings, relatively slower system credit growth and elevated funding costs, CBA said.

Net interest margin was broadly in line with the second half of fiscal 2012, with asset repricing impacts largely offset by continued deposit pricing pressure, it said.

The bank also reported positive "jaws" - revenue growth that is ahead of expense growth - after costs continued to be well-managed, CBA said.

Total impairment expense was broadly stable at 21 basis points of total average loans or $291 million in the quarter, the bank said.

Asset growth remained largely deposit-funded, with deposits now accounting for 63 per cent of total funding, it said.

The bank also said its fully harmonised Basel III CET1 (Common Equity Tier 1) ratio was 9.7 per cent as at September. CET1 is the highest quality of capital available to the bank and reflects the funds that are freely available to absorb losses.

By division, CBA said Retail Banking performed "reasonably well" during the quarter, highlighted by improved lending margins, solid growth in deposits and good cost discipline.

However, business lending remained subdued after elevated funding costs and a competitive environment continued to impact margins, the bank said.

Within the Institutional Bank and Markets unit, sales and trading were trending at a similar run-rate to the second half of fiscal 2012, it said.

The Wealth Management and Insurance unit saw solid volume growth in the quarter on the back of improved investment markets, CBA said. Funds under administration and funds under management grew by 6 per cent and 4 per cent, respectively.

Insurance premiums grew by 3 per cent as a result of improved penetration of the retail bank customer base for direct life and general insurance products, CBA said.

In New Zealand, the ASB Bank unit experienced good growth in customer advances and deposits through the quarter, with business and commercial lending growing above system, CBA said.