Commonwealth Bank [ASX:CBA] Hits Profit Record for First Half

Big Four bank Commonwealth Bank of Australia [ASX:CBA] has recorded record profit for half-year FY23, by delivering statutory NPAT (net profit after tax) of $5.2 billion.

The bank said net profit experienced a boost, thanks to support coming from interest incomes as consumers fork out more in interest payments, even while higher operating costs and loan impairment expenses continue to encroach on finances.

Despite the rising first-half profits, CBA shares dropped nearly 6% by Wednesday afternoon.

The big bank is flat in the year so far, but has managed to increase just over 4% in share value over the past 52 weeks:

www.TradingView.com

NPAT climbs for CBA as customers shoulder high interest

By experiencing a 9% proft increase in the half-year, the bank says it’s reached a new half-year record, in the shape of $5.15 billion.

This result met company expectations as home and business lending segments grew in the midst of harsh macro challenges faced by the greater economy — Australians slammed with higher interest rates.

The bank reported a 12% increase in operating income, to the total of $13.5 billion, which CBA says was driven by volume growth in core products and recovering net interest margins, even as other operating income failed to hit the mark.

Loan impairment expenses increased with inflationary pressure, rising interest rates, and continuing supply chain disruptions on top of declining house prices.

CBA rose its interim dividend by 20% in offering $2.10 a share, fully franked, representing a payout ratio of 69%. The bank explained this was evidence of a strong capital position, as well as sound generation of profits which had been generated in the eye of the inflation-shaped storm.

CBA’s expectations under question

Despite the bank touting higher profits for the half year, investors were devaluing the bank’s share price by nearly 6% in the afternoon.

Market analysts have been stewing on the bank’s proposed outlook and its relation to its results in the half year, wondering if such a result spells a peak in its margin, particularly given the current state of the economy and the likelihood of further interest rate hikes.

Further rate hikes are expected to take an even greater toll on households and businesses in the near future, and therefore — with funding cost pressure and loan impairments on the rise — the ability to use this to an advantage seems a precarious tactic, especially while attempting to balance its own rising expenses.

Nevertheless, CBA’s CEO Matt Comyn expects the economic growth to stabilise in the year and keeps an optimistic outlook that Australia can land on its feet.

Comyn commented:

‘We are conscious that many Australian households are feeling significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items.

‘Despite this, consumer spend remains resilient, with signs of spend slowing in pockets. The fundamentals of the economy remain solid, with low unemployment, strong exports, and returning migration.’

CBA’s share price was trading around $102.86 at the time of writing.

Regards,

Mahlia Stewart,

For Money Morning

All advice is general in nature and has not taken into account your personal circumstances. Please seek independent financial advice regarding your own situation, or if in doubt about the suitability of an investment. Any actual or potential gains in these reports may not include taxes, brokerage commissions, or associated fees.