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Why has the CBA’s share price tumbled today?


CBA's share price has crumbled in early trading but it's still up 47% over the past 12 months.

Shares in Australia’s biggest lender, Commonwealth Bank (ASX: CBA) are among the top losers on the ASX on Wednesday, sliding below the crucial $100 level in early trading.

At the time of writing, the stock had recovered slightly, albeit still down 6.3% at $100.89 and also weighing on the banking sector as a whole.

Why is the CBA stock price under pressure

On Wednesday 17 November, CBA reported its September quarter trading update and, on the face of it, the results seemed encouraging.

Unaudited cash profit for its fiscal first quarter climbed 22% to $2.2 billion, income was 3% higher from a year ago, while home and business lending grew at 1.2 times and 1.5 times the average industry rates, respectively.

However, a closer look reveals the numbers are not that good.

Cash profit was actually down 9% compared to the average of the preceding 2 quarters, when trading had been normal ahead of extended COVID lockdowns in NSW and Victoria.

More damagingly, CBA revealed that its net interest margin, or what it earns on loans minus the costs, was “considerably lower” in the September quarter.

Like its 3 major rivals – Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) – the bank attributed this to ultra-low interest rates and fierce competition in the home loans market.

It had reported a net interest margin of 2.03% in the fiscal 2021 year.

CBA said operating expenses over the 3 months to 30 September were also 4% higher from a year ago, and 3% up on the average of the previous 2 quarters. The increase largely related to higher staff costs.

Competition pressure

Australia’s major banks have been buffeted by the low interest rates that have narrowed margins on one hand, and rising competition in the mortgages market amid a boom in housing prices on the other.

Consulting firm Ernst & Young said last week the Big Four banks will continue to face subdued revenue and profit growth as the benefit of the Reserve Bank’s cheap term funding facility fades away and expenses climb due to ongoing investment in digital transformation, risk and compliance initiatives, as well as higher processing volumes.

On the positive side, CBA said its credit provisions for loan losses were “broadly unchanged” at $6.2 billion and consumer arrears on loans were lower in its first quarter.

Despite completing its massive $6 billion share buyback and final dividend payment, the bank expects its capital position to improve between 39 and 49 basis points when it completes the divestments of its general insurance arm and a 55% stake in Colonial First State.

It had a common equity tier 1 (CET 1) capital ratio of 11.2% in October, well above the banking regulator’s 10.5% "unquestionably strong" threshold.

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