CBA: Q3 update

The big name defaulters that hit Westpac and ANZ last week have hit CBA today, with its revelation that loan impairment expenses rose 67% in the quarter from the same period a year ago, to $427m. The increase was 'largely due to a small number of exposures in the Group's institutional lending portfolio … including a single relatively large domestic exposure with a syndicate of lenders including other Australian major banks'.

The charge equates to 0.25% of loans on an annualised basis, compared to 0.17% in the first half of 2016 and 0.16% for the 2015 full year. The last time we were at this level was 2011, although the charge reached 0.73% in 2009 in the wash-up from the global financial crisis. Our guess is that CBA's impairment charges will average 0.4–0.45% of loans over the long term.

The net interest margin was 'largely unchanged' from the first half and operating income growth was 'similar' to the 6% achieved in the first half. Operating expenses 'continued to be driven by business growth and investment, as well as ongoing regulatory and compliance costs', which presumably means they increased by more than operating income. Cash earnings were $2.3bn, up from $2.2bn in the third quarter of 2015.

The stock is up 6% since our Equity Income Portfolio increased its holding a month ago and up very slightly since CBA: Interim result 2016 on 11 Feb 16 (Hold – $73.59). HOLD.

Note: The Intelligent Investor Equity Income Portfolio owns shares in Westpac and Commonwealth Bank. You can find out about investing directly in Intelligent Investor and InvestSMART portfolios by clicking here.