Key takeaways from CBA’s third-quarter results
We take a look at some of the key figures and developments from Commonwealth’s Q3 results release.
Weaker, but not surprising results
The Commonwealth Bank of Australia's (CBA's) third-quarter (Q3) results were mostly in line with the other big four's recent results: namely, higher provisions, lower earnings and a somewhat impacted capital position.
Building on that, the bank emphasised the historical nature of the current economic circumstances, saying that as a result of the 'unprecedented set of circumstances which are still unfolding and evolving, a definitive assessment of the longer-term outcomes of the COVID-19 pandemic and the consequent economic and societal impacts is difficult at this stage'.
In response to these elevated levels of uncertainty – CBA took a prudent approach to provisioning as part of the Q3, booking a $1.5 billion provision related to the potential future impacts of COVID-19. The bank also booked a $135 million provision related to customer remediation.
All up, the bank's total credit provisions currently stand at $6.4 billion – implying a coverage ratio of 1.65%.
Elsewhere, the bank reported that 'consumer arrears were seasonally higher in the quarter, but lowered year on year [YoY]. Troublesome and Impaired Assets (TIA) were higher at $8.1 billion, reflecting seasonally higher consumer arrears and continued pockets of stress in certain sectors, including discretionary retail and agriculture'.
Earnings come in lower
Turning to the bottom-line results, the above noted impairment charges ate into the bank’s profitability during the quarter, with the CBA recording Q3 cash profits (NPAT) of $1.3 billion, significantly lower than the H1 FY20 quarterly average of $2.2 billion.
Moreover, while the bank reported growth across home lending, household deposits and business lending, CBA's net interest income ultimately came in flat, with those growth drivers 'offset by lower NIM [net of cash rate timing benefit]'.
Though growth may have continued across those three lending areas, many of CBA’s customers have begun to fell the impact of the coronavirus pandemic. Quantifying this impact, 240,000 CBA customers requested loan deferrals, made up of: 25,000 personal loans, 70,700 business loans representing $15.2 billion in balances and 144,000 home loans representing $50 billion in balances.
Elsewhere, by the end of the March quarter, CBA's CET1 ratio stood at 10.7% – post the issuance of the interim dividend and the above noted provisions.
CBA finished out the period as one of the most well capitalised banks in the world.
Other bits and pieces
CBA also announced today that it would be selling a 55% stake in its superannuation, investment and retirement business, Colonial First State (CFS), to global investment firm KKR, for a total consideration of $1.7 billion.
The sale is set to be completed by the first half of CY21.
In response to these results, CBA opened lower when trade resumed on Wednesday, trading down almost a full percent in the first ten minutes of trade, to $59.15 per share. Mind you, the broader market was also down, with the ASX 200 shedding 87 points or 1.62%.
By 11:15AM the CBA share price had rebounded, trading up 0.37%, to $59.93 per share.
How to trade on the CBA share price – long or short
What do you make of Commonwealth’s latest round of results: are you bullish or bearish on the retail-focused bank? Whatever your view, you can use CFDs to trade the likes of CBA and the other big four banks – long or short through IG’s world-class trading platform now.
For example, to buy (long) or sell (short) CBA using CFDs, follow these easy steps:
- Create an IG trading account or log in to your existing account
- Enter ‘CBA’ in the search bar and select it
- Choose your position size
- Click on ‘buy’ or ‘sell’ in the deal ticket
- Confirm the trade
This information has been prepared by IG, a trading name of IG Australia Pty Ltd. In addition to the disclaimer below, the material on this page does not contain a record of our trading prices, or an offer of, or solicitation for, a transaction in any financial instrument. IG accepts no responsibility for any use that may be made of these comments and for any consequences that result. No representation or warranty is given as to the accuracy or completeness of this information. Consequently any person acting on it does so entirely at their own risk. Any research provided does not have regard to the specific investment objectives, financial situation and needs of any specific person who may receive it. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research and as such is considered to be a marketing communication. Although we are not specifically constrained from dealing ahead of our recommendations we do not seek to take advantage of them before they are provided to our clients.
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