A tapering growth trajectory will test CBA

By Stephen Bartholomeusz

What had been very strong income growth in the first half flat-lined in the second half, which translated to a decline in cash pre-tax earnings growth from the 12 per cent CBA generated in the December half to 1 per cent growth in the June half despite very strong cost control.

The strength of the first half performance, during which CBA grew its interest earning asset base 7 per cent to $705 billion and respectable growth of 4 per cent in its lending in the second half, provided solid volumes to underpin the result and the 8 per cent increase in net interest income.

Overall, however, Ian Narev and his shareholders would be happy with another record result and the 12 per cent growth in cash earnings for the year, given that the external environment and the demand for credit haven’t been buoyant.

The group is strongly capitalised, with a Common Equity Tier One ratio of 9. 3 per cent (which CBA says is equivalent to an internationally harmonised ratio of 12. 1 per cent) but was still able to produce a sector-leading return on equity of 18. 7 per cent, 50 basis points higher than the previous year.

The biggest influences on that second-half experience were a 9 per cent fall in business and private banking profits and a 13 per cent decline in the earnings of CBA’s institutional banking and markets division.

He’d be particularly pleased that CBA demonstrated very good cost discipline, which showed up in a very slight decline in operating expenses in the second half and an overall cost-to-income ratio that fell 70 basis points to 42. 9 per cent.

Read more here: Business Spectator

    

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