MARKETS SPECTATOR: CBA's golden run

Despite tepid credit growth CBA ups profit and reduces bad debts. CBA's share run should continue.

Can things get even better for Commonwealth Bank? The stock, up 45 per cent in the last 12 months, rose in early trading after the second-biggest Australian lender said its net profit for the three months to March 31 was $1.9 billion, up 12 per cent from the same period a year ago.

CBA’s net interest margin was up. The average tenor of its wholesale funding rose to 3.8 years. The bank’s deposit funding percentage increased to 65 per cent, presumably paring its cost of funds. Total impaired assets were unchanged from December 2012 at $4.3 billion.

Still, CBA says its household lending business recorded only “modest” growth in the three months to March. There was little or no growth in commercial lending. Its fund management grew its funds under administration and management by 4 per cent. The bank’s New Zealand business may have benefitted from better household lending in that country but company credit demand is subdued.

Impaired assets and past due loans for CBA fell to $7 billion in March from $7.1 billion in December, further evidence the bad debt cycle is at its nadir, helping to boost the bottom line. Home loan arrears continue to fall. Credit card arrears show no signs of picking up. 

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