Commonwealth Bank of Australia Reports a Rise in Cash Earnings for the March Quarter
Statutory net profit was $2.4 billion, with non-cash items being treated on an ongoing basis to prior periods.
The Commonwealth Bank of Australia (ASX:CBA) released a trading update, reporting a 4.5% rise in cash earnings of approximately $2.3 billion for the quarter ended 31 March 2016.
Statutory net profit was $2.4 billion, with non-cash items being treated on an ongoing basis to prior periods. The operating income growth was consistent with the 1H16 period, as trading income grew marginally, attributed to a small positive contribution from derivative valuation adjustments.
The bank commented on the local economy: “The Australian economy is performing relatively well, with a steady transition from a mining-dependent to a more broad-based economy evident in GDP and unemployment trends, and supported by low interest rates and the decline in the AUD over the past 18 months.”
Troublesome Assets Grew 6.7%
Loan impairment expenses grew 25 basis points to $427 million over the six months period ended 31 March 2016. The bank states that this rise was primarily due to exposures becoming impaired or portraying heightened signs of stress during the period. As a result, the Group Troublesome and Impaired Assets rose 6.7% to $6.3 billion, compared to the December quarter.
The Wealth Management segment underperformed, as Assets under Management and Funds under Administration dropped by 1% and 2% respectively, due to falling investment markets, lower net flows and adverse exchange rate movements.
The overall personal home loan arrear rates remained low, however the regions of WA and Queensland were impacted by the mining downturn.
Basel III Common Equity Tier 1 Ratio was 10%
The group’s Basel III Common Equity Tier 1 (CET1) APRA ratio declined 20 basis points to 10%, as at 31 March 2016. The group’s Basel III internationally comparable CET1 ratio dropped to 13.9%, from 14.3% at December 2015.
The leverage ratio (Tier 1 Capital as a percentage of total exposures) was 4.9%, slightly lower than the 5% for the pcp. The reduction in the March quarter’s leverage ratio was mainly due to the rise in total exposures and the 2016 interim dividend payment, partially balanced by the capital generated from earnings.
CBA rose 1.4% since the announcement and was last traded at $75.41, as at 10:35 am (AEST).
Author: Kaivalya Kandarpa
May 09, 2016
Kaivalya is an equity analyst and a client advisor at Wise-owl. She specialises in fundamental and technical analysis for large and mid-cap companies. Having completed her bachelor's degree in Business Administration majoring in Finance, Kaivalya has a comprehensive understanding of international stock market movements. She tracks local and overseas markets and compiles analytical reports for various industries.