Commonwealth Bank reported a 1 per cent fall in income in the September quarter, as it faces questions from analysts about whether its share price premium over its big bank peers is justified.
CBA’s net interest income of A$4.7 billion was 1 per cent higher but non-interest income of $1.4 billion was down 8 per cent (comparisons are with the average of the September and December quarters last year).
The fall in non-interest income was due to the divestment of Aussie Home Loans, lower earnings from minority investments and lower retail banking and merchant fees due to COVID restrictions.
The bank reported an unaudited net profit of $2.2 billion for the quarter, up 20 per cent, while pre-provision profit was steady.
It said its net interest margin was “considerably lower” during the quarter, although it did not say what it was. The lower NIM was a result of the bank holding higher liquid asset balances, home loan price competition, and the ongoing impact of low interest rates.
Home loan arrears were 58 basis points, compared with 55 bps for the same period last year. Credit card and personal loan arrears were well down. Troublesome and impaired assets were 55 bps of total committed exposures, compared with 74 bps in the same period last year.
Macquarie Securities issued a note on the banking sector this week, questioning why CBA is trading on a forward price-earnings multiple of 22 times, compared with 14 to 16 times for the other big banks.
It said the bank’s recent history of flat or falling revenue and absence of any pre-provision earnings growth puts a question mark over its valuation premium.
“Despite promising recent market share trends, revenue and pre-provision earnings continue to disappoint. CBA’s pre-provision earnings per share have declined by around 7 per cent over the past three years,” Macquarie said.
It said the bank needs to boost earnings per share growth to justify its premium but there are several reasons it might not be able to achieve that.
CBA’s home loan book grew by $10.1 billion during the September quarter – 1.2 times system. Business lending grew at 1.5 times system.
Macquarie said that with Westpac and ANZ promising to return to system growth in home lending, CBA might not have the opportunity to continue growing above system.
The bank’s share price fell 8 per cent yesterday, finishing at $98.99.