CBA on $5bn surge
CONSUMER PAIN PAYS
COMMONWEALTH Bank’s first-half profit is set to eclipse $5bn for the first time, as the nation’s biggest home lender reaps the benefits of rising interest rates and loan losses that remain in check.
The bank reports interim earnings on Wednesday and will shed light on what is expected to be a stellar earnings period for the sector, ahead of a bumpier operating climate as credit growth cools and rates continue to increase.
Bloomberg consensus estimates have CBA reporting an interim cash profit of $5.17bn for the six months ended December 31, up from $4.75bn in the same period a year earlier.
The bank is also expected to deliver a bumper first-half dividend of $2.09, well above the $1.75 interim payment a last year.
CBA reports after rival ANZ last week provided a December quarter update showing robust credit growth and a decline in impaired assets, despite the sharp increase in interest rates from May through to 2022’s end.
Investors and analysts will also receive a December quarter update from National Australia Bank on Thursday, following CBA’s results, while Westpac provides quarterly data on Friday. CBA has a June 30 end while its main rivals rule off their financial year on September 30.
Analysts and investors will closely monitor what CBA chief executive Matt Comyn has to say about the outlook for credit growth and loan losses as the economy markedly slows. They will also likely seek hints on what the bank expects for net interest margins – what banks earn on loans less funding costs – in the lead-up to June 30.
Against the backdrop of a 7.2 per cent rally in CBA’s stock this year, and the premium the bank trades at relative to its peers, there are no analysts recommending CBA as a “buy”, according to Bloomberg. Some 13 analysts rate the stock a “sell” and three a “hold”.
Ethical Partners Funds Management investment director Nathan Parkin highlighted that few large ASX stocks garnered no buy ratings, pointing to two examples of Fortescue Metals Group and plumbing firm Reece.
“The (CBA) sentiment is negatively skewed so it (the profit result) has the potential to surprise in that sense,” Mr Parkin said.
He noted CBA had a “tight focus” on strategy that had typically delivered a “better set of outcomes” versus its peers, so in that regard a valuation premium was warranted.
“It has had less share issuance than any other major bank over a decade,” he said.
On CBA’s prospects and those for the sector in the near-to-medium term, Mr Parkin said there were challenges on the horizon around fiercer competition for deposits and the risk of notably higher loan losses.