Commonwealth Bank: Don’t Dwell on a Lack of Loan Growth, It’s a Choice

We maintain our AUD 90 fair value estimate for wide-moat-rated Commonwealth Bank following a solid trading update. While highlighting lower net interest margins, or NIMs, as an earnings drag, the bank still managed AUD 2.5 billion in profit for the September quarter, up 1% on fiscal first-quarter 2023 and flat on the quarterly average of fiscal second-half 2023. Loans declined modestly as the bank prioritized profitability over volumes. Operating expenses increased 3%, bad debt expenses remained low, and the capital position is strong. On continued wage and vendor cost pressures, we lift our operating expense forecast by 3%, implying 5% growth for the full year. This is offset by lower-than-expected bad debt expenses though, with our full-year profit and dividend forecasts largely unchanged.