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AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED

(ANZ)
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Australia's CBA Q1 profit drops 16% as record-low rates hit margins

11/10/2020 | 04:56pm EDT

* Cash profit A$1.8 bln

* Home and business lending jumps A$7 bln

* Net interest margin falls

SYDNEY, Nov 11 (Reuters) - Commonwealth Bank of Australia , the country's largest bank, on Wednesday said first-quarter cash profit fell 16% as near zero interest rates squeezed margins and offset sector-leading lending growth.

Australia's four biggest lenders have seen cash earnings fall by over a third in fiscal 2020 as the pandemic-driven economic crisis batters the sector.

But while some of its peers have been cautious about expanding their loan books in such a market, Commonwealth Bank has shown a solid appetite to lend.

The bank reported a A$7 billion ($5.1 billion) increase in home and business lending during the three months to September, twice the average increase by its peers.

With the official cash rate down to 0.1%, CBA and its peers chose to protect their margins by lowering fixed rates rather than passing on the savings to the majority of their mortgage customers who have variable-rate products.

While that slowed the pace of margin erosion as customers need to refinance their loans to benefit, CBA said more were doing so thus lowering its net interest margin - the difference between interest earned from lending and paid for deposits. The bank did not say how much its margin had fallen.

Cash net profit after tax, which excludes one-offs and non-cash accounting items, dropped to A$1.80 billion ($1.3 billion) in the three months ended Sept. 30, CBA said.

The trading update was "slightly underwhelming ... for a premium rated stock," Credit Suisse analysts said. Goldman Sachs agreed, maintaining its sell rating on the bank, which trades at a 24% premium to peers.

CBA said impaired and other troublesome assets fell to A$8.40 billion, from A$8.70 billion as of June-end, due to pandemic support for borrowers including freezing loan payments for several months.

About 4% of all home loans and 3% of SME business loans were still in the pandemic deferral programme, down from about 11% and 28% respectively in June.

($1 = 1.3732 Australian dollars) (Reporting by Paulina Duran in Sydney and Shashwat Awasthi in Bengaluru; Editing by Aditya Soni and Stephen Coates)


© Reuters 2020
Stocks mentioned in the article
ChangeLast1st jan.
AUSTRALIA AND NEW ZEALAND BANKING GROUP LIMITED -0.11% 28.21 End-of-day quote.24.27%
COMMONWEALTH BANK OF AUSTRALIA -0.07% 104.88 End-of-day quote.27.73%
CREDIT SUISSE GROUP AG 0.42% 9.63 Delayed Quote.-15.53%
NATIONAL AUSTRALIA BANK LIMITED -0.14% 28.86 End-of-day quote.27.70%
WESTPAC BANKING CORPORATION -0.35% 25.74 End-of-day quote.32.89%
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Financials
Sales 2021 17 363 M 12 960 M 12 960 M
Net income 2021 6 130 M 4 575 M 4 575 M
Net Debt 2021 - - -
P/E ratio 2021 13,6x
Yield 2021 4,94%
Capitalization 78 757 M 58 844 M 58 784 M
Capi. / Sales 2021 4,54x
Capi. / Sales 2022 4,35x
Nbr of Employees 37 844
Free-Float -
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Number of Analysts 15
Last Close Price 28,21 AUD
Average target price 29,70 AUD
Spread / Average Target 5,28%
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Managers and Directors
Shayne Cary Elliott Chief Executive Officer & Executive Director
Farhan Faruqui Chief Financial Officer
Paul Dominic O'Sullivan Chairman
Gerard Florian Group Executive-Technology
Michael Liarakos Chief Compliance Officer