The Commonwealth Bank has confirmed that it is on track for another record full-year profit after reporting cash earnings of $1.9 billion for the March quarter, maintaining the strong run of profit results for the major banks.
In its third quarter update yesterday the bank revealed cash earnings of around $1.9 billion, up from $1.75 billion a year ago. Statutory earnings for the March quarter were also around $1.9 billion.
The solid gain completes the good news from the banking sector for the time being after Westpac, NAB, ANZ and the Bank of Qld all revealed solid March half year gains and improved dividends for shareholders.
The update saw CBA shares rise by just under 1% to $72.65, after touching a high for the day of $72.93.
For the first nine months to the year the CBA has earned around $5.7 billion and another result for the June quarter as we had for the three months to March, will host earnings to a massive $7.6 billion – that would be well ahead of the $7.1 billion the bank earned in 2011-12.
CBA shares up on solid Q3 upgrade
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In its third quarter update, the CBA told the ASX that revenue growth continued to reflect a combination of conservative management and modest growth in the credit market.
Like the other big four banks, CBA was able to increase its net interest margin in part by not passing on the full official Reserve Bank interest rate cuts over the past two years.
The bank said its margin gains were “partly offset by higher funding costs”. The bank did pass on the Reserve Bank’s latest rate cut of 0.25% in full this month.
The bank reported growth in household deposits but said deposit margins remained under pressure in a competitive market. Deposit funding now made up 65% of its funding.
Group Net Interest Margin was higher in the quarter due to a combination of factors including prior period asset re-pricing, partly offset by higher funding costs.
Trading income in the quarter was at a level consistent with the 1H13 run-rate.
Expenses continued to be well managed.
Group liquids remained very strong at $130 billion.
Total impairment expense was $255 million in the quarter, or 19 basis points of total average loans.
Asset growth was funded by deposit growth in the quarter, with the deposit funding percentage increasing to 65% at the end of March. The average tenor of the wholesale funding portfolio was extended further in the quarter to 3.8 years.
Arrears rates in home lending were stable in the quarter, but seasonally higher in unsecured consumer lending. Corporate credit quality was stable, with total impaired assets largely unchanged from December 2012 at $4.3 billion and provisioning levels and coverage ratios remained strong, with the economic overlay maintained, the bank said yesterday.
Meanwhile the CBA looks like being the first bank to feel the impact of the budget move against dividend washing by big shareholders. That’s used by big domestic investors and allows them to effectively double the tax break they receive from franking credits.
The big shareholders move into bank shares around 50 to 45 days before the date when the bank’s dividend is announcement or declared. That qualifies them for the tax deduction from the fully franked dividends. It is estimated that the move will add $60 million to government revenue over three years. There had been fears that the process might grow rapidly as investors large and small hunt for higher returns and yields.
The change starts July 1 and the CBA will be impacted first (or rather shareholders will be impacted), because its financial year ends June 30 and the final dividend will be known when the bank reports in August.
What the move is trying to do is stop big investors double dipping in franking credits during a two day period when the shares may be traded with and without the dividend.
CBA – 2013 March Quarter Trading Update Media Release
