Why has the CBA’s share price tumbled today?

Posted: 17 November 2021 12:35 pm
News
CBA-Shares-17Nov_1800x1000_Finder

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.

Serious about investing? Here's your new unfair advantage

Ticker Nerd uses advanced software to track hundreds of signals and data points to find stocks before they blow up. Don't miss out!
Get started for free

Looking to buy CBA shares?

Choose an online share trading platform. There are dozens of platforms available for Australian investors. You can compare the features and fees before choosing the right one for you here.

Some trading platforms offer US stocks only, so make sure to select a platform that offers Australian stocks.

Looking for a low-cost online broker to invest in the stock market? Compare share trading platforms to start investing in stocks and ETFs.

Disclaimer: This information should not be interpreted as an endorsement of futures, stocks, ETFs, CFDs, options or any specific provider, service or offering. It should not be relied upon as investment advice or construed as providing recommendations of any kind. Futures, stocks, ETFs and options trading involves substantial risk of loss and therefore are not appropriate for all investors. Trading CFDs and forex on leverage comes with a higher risk of losing money rapidly. Past performance is not an indication of future results. Consider your own circumstances, and obtain your own advice, before making any trades.

Get more from Finder

Ask an Expert

You are about to post a question on finder.com.au:

  • Do not enter personal information (eg. surname, phone number, bank details) as your question will be made public
  • finder.com.au is a financial comparison and information service, not a bank or product provider
  • We cannot provide you with personal advice or recommendations
  • Your answer might already be waiting – check previous questions below to see if yours has already been asked

Finder only provides general advice and factual information, so consider your own circumstances, or seek advice before you decide to act on our content. By submitting a question, you're accepting our Terms of Use, Disclaimer & Privacy Policy and Privacy & Cookies Policy.
Go to site