While not a current holding within any portfolios, as one of Australia’s largest banks, Commonwealth Bank (CBA) is a widely followed stock. Following the announcement, markets have responded strongly with shares down -3.4% compared to a -2% fall in the financial sector this morning.
For the first half of the financial year, CBA reported a cash profit from continuing operations of $5.02 billion, briefly surpassing analyst expectations of $4.92 billion, although a 4.3% decrease from the previous year. The bank’s net interest margin dropped 11 basis points to 1.99%, as the bank navigated increased competition for deposits and mortgage market share, likely driving the underperformance in the share price this morning.
The company also revealed its home loan balances declined by $2 billion in the half to $650.5 billion, losing 100,000 customers as its market share in home loans fell to 25.3%. Offsetting these challenges somewhat was an increased interim dividend of $2.15, slightly above the anticipated A$2.11 and said it will continue to target a full-year payout ratio of 70%-80% in its cash profit.
There was also little guidance on the outlook for margins over the second half, also likely contributing to weakness this morning, and today’s weakness should also be viewed in the context of recent strength in the share price which saw CBA gain 20% since November 1st prior to this morning’s results.
Given the highly competitive home loan market in Australia, we continue to see a squeeze on net interest margins across major lenders, in line with what one would expect under such market conditions and is affecting the sector as a whole. Despite the potential for this to translate into tougher conditions in the coming months, CBA remains well placed within the home loan market, and for those seeking income, CBA’s consistent dividend yield will likely attract dip buyers once the market begins to settle.
