Everything you need to know about CBA's half-year result

Commonwealth Bank (ASX: CBA) delivered a relatively in-line half-year result, navigating anticipated margin pressures, fierce competition and the delayed effects of rising interest rates. The stock fell 2.5% as the market opened.

"Our lower cash profit reflects cost inflation and a competitive operating environment," Chief Executive Matt Comyn said in a statement.

"We further strengthened our balance sheet, with high levels of provision coverage, surplus capital and conservative funding metrics. This ensures that we are well positioned to support our customers, manage potential headwinds and deliver long-term sustainable returns to our shareholders."

First-half FY24 – Key numbers

• Net interest income of $13.6 billion, down 2% due to a decrease in net interest margin but partly offset by volume growth in home and business lending

• Cash net profit after tax of $5.02 billion, down 3% but above $4.95 billion consensus

• Cash earnings per share of $3.00, down 2% but above $2.93 consensus

• Net interest margin of 1.99%, down 11 bps and below 2.00% consensus

• Loan impairment expense of $415 million, down 18.8% and below $538 million consensus

• CET1 ratio was 12.3%, up from 12.2% at 30 June 2023 and well-above APRA's regulatory requirements

• Interim dividend of $2.15 per share, up 2% and above $2.10 per share consensus

• Dividend payout ratio of 72%, in-line with 70-80% payout ratio (of cash NPAT)

Outlook comments

"The economy has been fairly resilient, supported by a strong labour market, savings and repayment buffers, population growth and relatively high commodity prices. However, downside risks are building as slowing demand and persistent inflation impact Australian businesses. Ongoing geopolitical tensions also create uncertainty," Comyn said.

"As cash rate increases have a lagged impact on households and business customers, we expect financial strain to continue in 2024, with an uptick in our arrears and impairments."

Key takeaways

Net interest margins eased in line with market expectations. CBA attributes this weakness to i) lower home lending margins due to increased competition and the impact of higher cash and swap rates pricing; ii) lower business lending margins due to competitive pricing; iii) lower consumer finance margins reflecting cash rates increasing faster than customer rates and iv) higher deposit margins.

The top line was relatively intact as lower margins were partially offset by volume growth. That said, CBA's volume growth was below system for home/household-related segments (below refers to the 12 months to Dec-23).

• Home lending growth of 2.0% vs. 4.2% system

• Business lending of 6.7% vs. 6.4% system

• Household deposits of 6.1% vs. 7.4% system

• Business deposits of 1.9% vs. 0.3% system

Credit quality remains sound, with modest uptick in arrears (up from 0.43% in Dec-22 but unchanged from Dec-21) and lower loan impairment expense.

A tough session

The ASX 200 is down 1.1% in early trade after a weak lead from Wall Street.

The S&P 500 and Nasdaq both fell more than 1% after a hotter-than-expected January CPI print of 3.1% (2.9% consensus).

Shares in the other majors NAB (ASX: NAB), Westpac (ASX: WBC) and ANZ (ASX: ANZ) are all down around 1.7% in early trade.

Waiting for brokers

Analysts are running the ruler against the new numbers and we can expect further insights from them over the next 24 hours.

As of Friday, 9 February, the consensus target price for CBA was $90.88 or 20% below current levels.

"From a fundamental perspective, there is little to justify in changing tack anytime soon. CBA is close to one of the most expensive banks in the world and is expensive even by its own lofty standards," Citi analysts said in a note dated February 2.

"Over time, CBA’s size in the market and liquidity has proved attractive to investors when rotating out of other large sectors, due to the relatively undiversified market. However, history shows (i.e. 2015/16) that these valuation discrepancies eventually correct. We retain our Sell call heading into February."