Australian CBA shares slide amid falling margins despite rising profits

People use Commonwealth Bank of Australia (CBA) ATMs in Sydney, Australia on May 3, 2018. REUTERS / Edgar Su

  • First Quarter Cash Profit Up 20% to A $ 2.20 Billion
  • Net interest margin “significantly lower”, stocks slide 8%
  • Even CBA is not immune to pressure on margins – Goldman Sachs

SYDNEY, Nov. 17 (Reuters) – The Commonwealth Bank of Australia (CBA.AX) has warned that fierce competition in its main mortgage market is “significantly damaging its margins”, sparking a massive sell off of one of the bank’s stocks on Wednesday the most expensive in the world.

The nation’s No.1 lender issued the warning as it announced its first-quarter cash profit increased by a fifth on stronger growth than home and business loans.

CBA has outperformed its competition over the past year with its extensive branch network and technology that has helped it take advantage of a hot real estate market and weaker-than-expected economic blow from the pandemic.

However, the quarterly update showed that revenues were stable and that the bank’s net interest margin (NIM), a key measure of profitability, was “considerably lower” due to mortgage competition and disruption. ‘a low interest rate environment. The fees were also lower, the ABC said.

Shares of CBA, which had risen 34% over the past year to a record A $ 110.19 on November 8, fell nearly a tenth to a nearly four-month low at AU $ 98.75 after the update, their biggest drop since March 2020. The stock was trading 7% to 8% lower on Wednesday afternoon. Read more

“The CBA has been priced to perfection, trading at a significant premium over its peers, and this business update shows me that the breadth of that premium is not warranted,” said Azib Khan, analyst. banking at Morgans Financial.

“What we are seeing is a correction to this bonus, which should take place.”

The CBA did not disclose details of the net interest margin. Morgans estimated it had fallen about 14 basis points in the quarter, while Citigroup estimated it was in the “lows of 1.90”, down from 2.04% in June.

CBA’s three “Big Four” – the National Australia Bank (NAB.AX), Westpac Banking Corp (WBC.AX) and Australia and New Zealand Banking Group (ANZ.AX) – have said in recent weeks that intense competition would continue. put pressure on the margins. read more Shares of the trio fell 1.3% to 1.9% on Wednesday.

“Today’s business update underlines that even CBA’s strong franchise is not immune to the high pressures on margins that appear to have a particular impact on retail banks,” said the Goldman Sachs bank analyst Andrew Lyons in a client note.

CBA’s cash profit for the quarter ended Sept. 30 was A $ 2.20 billion (A $ 1.60 billion), from A $ 1.80 billion a year ago.

Home loan sales volumes grew 7% year-on-year, equivalent to 1.2 times the growth of the entire banking system amid continued demand for fixed rate loans.

Business loans rose 13% over the same period, on improving confidence as the economy on the road to a full recovery emerges. This compares to the system’s business credit growth through September of 4.6%. Read more

Hugh Dive, chief investment officer of Atlas Funds Management, said the drop in the share price was an “overreaction of the market, both because the story of the pressure on NIMs is not a story. surprise, and because this is only an unaudited quarterly update, which tends to come with a lot of noise. I’m really not tearing my hair out. “

($ 1 = AU $ 1.3701)

Reporting by Paulina Duran in Sydney; Additional reports from Indranil Sarkar and Sameer Manekar in Bangalore; Editing by Devika Syamnath, Richard Pullin and Jane Wardell

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