CBA shares on a high as profits swell 14%
In the latest bumper result from the sector, the country's biggest lender on Wednesday said cash earnings swelled 14 per cent to $2.1 billion in the September quarter. Investors cheered the result, pushing shares in the lender to an record high of $78.40.
It comes as the bank faces a new class action relating to its 2008 takeover of BankWest, which proponents say has already attracted claims worth about $500 million.
After the big four racked up collective profits of $27.4 billion in 2013, CBA's latest result confirmed the industry is reaping the benefits of fewer bad loans and a lift in mortgage lending.
The bank said the healthy profit result, up from $1.85 billion a year earlier, had been driven by solid revenue growth, contained costs and improving credit quality.
Although the bank's profit margins had declined marginally, analysts said the result suggested it was on track to post profits of more than $8 billion in the year to September 2014, bettering this year's result of $7.8 billion.
Andrew Martin, principal at fund manager Alphinity, said the sector's profits were being helped by its focus on costs and lower provisioning for bad debts.
"They're getting a bit of a tailwind after such a tough period in the GFC [global financial crisis] and post-GFC, where they did experience quite large losses and put away quite large reserves," Mr Martin said.
CBA's ratio of bad and doubtful debts to total loans declined to 16 basis points, with fewer home loan customers falling behind on repayments.
The resurgent sharemarket also helped to enhance the bank's bottom line, with assets under management in its fund management arm lifting 4 per cent in the quarter.
In a sign record low official interest rates are changing the behaviour of some consumers, the bank said there was "strong growth" in new business, though customers continued to pay off loans quickly.
"Whilst lower interest rates have supported strong growth in new business activity compared to the prior year, this has been balanced by higher levels of loan repayments," the bank said.
The bank's net interest margin - which measures the profitability of lending - had narrowed "marginally" due to low interest rates, it said. But analysts said this was in line with industry trends.
White Funds Management managing director Angus Gluskie said the numbers showed conditions facing the banks were "benign" and argued recent dividend growth was sustainable.
"They're not being confronted by too many negatives, and for bank investors that means we're likely to see things continue to roll on in a reasonably favourable manner unless we see some dramatic change," he said.
Separately, a new class action against the bank will be launched over allegations it unfairly terminated commercial loans after buying BankWest in 2008.
Unhappy Banking spokesman Geoff Shannon said about 150 people had so far joined the action with claims of about $500 million, and the value of the claims could run into billions of dollars.
Frequently Asked Questions about this Article…
Commonwealth Bank shares are reaching a record high due to a significant increase in cash earnings, which swelled by 14% to $2.1 billion in the September quarter. This growth is driven by solid revenue growth, low bad debts, and an improving economy.
Commonwealth Bank shares have reached a record high due to a 14% increase in cash earnings, driven by revenue growth, low bad debts, and an improving economy.
Commonwealth Bank's profit growth is attributed to solid revenue growth, contained costs, improving credit quality, and a decline in bad and doubtful debts. The bank's focus on cost management and lower provisioning for bad debts also plays a crucial role.
The profit increase for Commonwealth Bank was driven by solid revenue growth, contained costs, and improving credit quality, despite a slight decline in profit margins.
The current economic environment, characterized by low interest rates and a resurgent sharemarket, is positively impacting Commonwealth Bank's performance. These conditions have led to strong growth in new business activity and an increase in assets under management.
Commonwealth Bank is benefiting from the current economic conditions through fewer bad loans, a lift in mortgage lending, and strong growth in new business activities.
The class action against Commonwealth Bank is significant as it relates to allegations of unfairly terminating commercial loans after the 2008 takeover of BankWest. This legal action has attracted claims worth about $500 million, with potential to increase further.
Low interest rates have supported strong growth in new business activity for Commonwealth Bank, although they have also led to a marginal narrowing of the bank's net interest margin.
Low interest rates are supporting strong growth in new business activities for Commonwealth Bank. However, they are also leading to higher levels of loan repayments, which balances the growth in new business.
The class action against Commonwealth Bank is significant as it relates to allegations of unfairly terminating commercial loans after the 2008 BankWest takeover, with claims potentially reaching billions of dollars.
Declining bad debts have positively impacted Commonwealth Bank by reducing the ratio of bad and doubtful debts to total loans to 16 basis points. This improvement in credit quality contributes to the bank's overall profitability.
Commonwealth Bank has seen a decline in its ratio of bad and doubtful debts to total loans, with fewer home loan customers falling behind on repayments, indicating improved credit quality.
Commonwealth Bank's net interest margin, which measures the profitability of lending, has narrowed marginally due to low interest rates. Despite this, analysts suggest that the bank's profitability remains strong and in line with industry trends.
The resurgent sharemarket has enhanced Commonwealth Bank's bottom line, with assets under management in its fund management arm increasing by 4% in the quarter.
Analysts, such as Angus Gluskie from White Funds Management, believe that the recent dividend growth of Commonwealth Bank is sustainable. They note that the bank is not facing many negative conditions, suggesting a favorable outlook for investors.
According to analysts, the recent dividend growth trends for Commonwealth Bank are sustainable, as the bank is not facing many negative conditions and is likely to continue performing well unless there is a dramatic change.
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