SYDNEY - The Commonwealth Bank of Australia (OTC:CMWAY) (CBA) announced on Monday that its unaudited net profit after tax (NPAT) stood at AUD 2.5 billion (USD 1.59 billion) for the first quarter of the new fiscal year, marking a consistent operational performance with a focus on customers. The result remained unchanged compared to the average of the previous second half of FY23 and showed a modest 1% increase from the first quarter of FY23.
The bank's operating income stayed stable, benefiting from volume growth and additional days in the quarter, but this was counterbalanced by diminished net interest margins and other operating income. Notable growth was recorded in business lending, which surged by 11%, household deposits rose by 5.7%, and home lending increased by 3.1%. In contrast, domestic mortgage balances saw a reduction of $4.5 billion due to competitive pressures and disciplined margin management.
Operating expenses witnessed a 3% rise from the second half of FY23's quarterly average primarily due to wage inflation, albeit partially mitigated by ongoing productivity initiatives. The bank's overall operating performance improved by 2% from the prior corresponding period and was consistent with the second half of FY23's quarterly average.
CBA CEO Matt Comyn underscored the bank's robust balance sheet, which he said positions CBA to provide support for its customers amidst challenging economic conditions and contribute to the stability of the Australian economy. He acknowledged a modest uptick in consumer arrears over recent months but emphasized that credit quality remained strong with several indicators near historic lows. The loan loss rate for the quarter was reported at nine basis points of gross loans and acceptances, compared to 12 basis points for FY23.
The bank remains heavily deposit-funded at 75%, with long-term and short-term wholesale funding constituting 17% and 8% of total funding, respectively. CBA repaid $19 billion of the Reserve Bank of Australia's Term Funding Facility, which was established during the COVID-19 pandemic, and issued $17 billion in new long-term wholesale funding this fiscal year.
Maintaining a solid capital position, CBA reported a Common Equity Tier 1 (CET1) ratio of 11.8%, significantly above the Australian Prudential Regulation Authority's (APRA) minimum regulatory requirement of 10.25%, translating into $7.3 billion in surplus capital. The bank also completed an on-market purchase of over $700 million worth of shares to offset the impact of the dividend reinvestment plan for the second half of FY23 and initiated a $1 billion on-market share buy-back.
Despite these positive notes, Tuesday's report highlighted concerns such as surging interest rates and inflationary pressures contributing to an increase in consumer arrears, signaling growing financial distress among clients. This indicates that while CBA maintains financial stability and meets regulatory requirements, it is also navigating through an environment where consumers are facing increasing financial challenges.
InvestingPro Insights
Drawing on real-time data from InvestingPro, CBA's Price / Earnings (P/E) ratio for the last twelve months as of Q2 2023 stands at 2.4, suggesting the stock might be undervalued. The PEG ratio, which measures the stock's value while taking the company's earnings growth into account, is at an impressively low 0.11. Moreover, the Price / Book ratio is also low at 0.35, further pointing to the stock's potential undervaluation.
Turning to our InvestingPro Tips, despite some concerns about cash flow and earnings quality, CBA has a strong track record of maintaining dividend payments, having done so for 32 consecutive years. This is a testament to the bank's financial resilience and commitment to shareholder returns. Additionally, the bank's stock is known for its low price volatility, making it a potentially stable investment.
For those interested in gaining further insights, InvestingPro offers a wealth of additional tips and data points, providing a more comprehensive understanding of CBA's performance and outlook.
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