Commonwealth Bank Earnings: Share Price Hotter Than Earnings Trends

Commonwealth Bank’s earnings highlight the quality of the wide-moat bank. A clear market leader with the lowest cost/income ratio, thanks to scale, cheaper funding costs, and leading digital offerings. Add to this low loss rates, a strong capital position, and strong track record of dividend growth. But competition can't be ignored. Fiscal 2024 cash net profit after tax declined 2% as net interest margin, or NIM, slipped 8 basis points to 1.99%. This reflects industry headwinds from customer deposit price competition and switching, and discounting in home lending. This was a bit better than our 1.97% forecast, and the 1-basis-point improvement on the first half supports our forecast for modest margin improvement over the medium term. Overall, the result was broadly in line with our expectations—flat top line with modest loan growth offsetting weaker margins, 3% expense growth, and below-average bad debt expenses.