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CBA share price: 3 key things we learnt from the Q1 trading update

We take a look at three important things we learnt from the Commonwealth Bank of Australia's (ASX: CBA) latest quarterly results release.

CBA Q1 in focus Source: Bloomberg

When CBA released their quarterly results to the market this morning, the bank revealed that their cash net profits, operating income and operating expenses had all risen during the first quarter of FY20.

The market seems to have assessed these results as good, but not great, with the CBA share price rising just half-a-percent higher at the open.

Even so, below we take a look at three key things we learnt from CBA’s latest quarterly update.

CBA share price: key financials in focus

While staffing costs and IT amortisation charges pushed operating expenses up 2%; unaudited statutory net profits also rose – to $3.8bn in Q1 – bolstered by the bank's $1.5bn sale of CFSGAM.

Yet maybe it was CBA's cash net profits (NPAT), which climbed 5% to 2.3bn during Q1 (when excluding notable items) that will prove the most promising to current and prospective investors.

Though the above are indeed positive indicators, as to be expected, the impact of historical low rates continue to eat into bank margins. Here it was pointed out that:

'The Group's Net Interest Margin was lower than June 2019 due to headwinds associated with a low interest rate environment, which will continue to impact margins in future periods.'

Irrespective of today's results, the CBA share price still lags the broader market, rising just 13% since January.

Capital requirements remain strong

Speaking to the volatility of the current business and economic landscape, CBA's Chief Executive Officer, Matt Comyn said:

'The Bank remains well placed in a challenging operating environment, characterised by global macro-economic uncertainty and historically low interest rates.’

Indeed, though these macro conditions may remain difficult, CBA’s capital position remains robust. Excluding CBA's 2019 Final Dividend, the bank has maintained an ‘unquestionably strong' capital position, with a CET1 ratio of 10.6%.

On the dividend front, CBA is expected to pay its interim dividend for the 2020 fiscal year on March 31 – 2020.

Potential problems and solutions?

Of course, though low interest rates have eaten into bank margins – they also have the potentially positive impact of spurring people and businesses to borrow more.

Such a thought looks well illustrated in CBA’s volume growth for the first quarter. Specifically, since July 2019 home lending has grown 3.5%, household deposits 10.4% and business lending 2.8%.

In step with that however, we also see that 'troublesome and impaired assets increased to approximately $8.1bn. Corporate Troublesome assets continued to reflect weakness in discretionary retail, construction and agriculture.'

Even with higher troublesome and impaired assets, CBA's CEO Mr Comyn stressed that the bank’s:

'Strong capital position and balance sheet settings mean we are well placed to meet the needs of our customers, illustrated by good volume growth in our core markets of home lending, business lending and household deposits.'

The CBA share price currently trades at $80.75.

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