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Why is the CBA share price leading banking stocks higher today?

Posted: 9 February 2022 12:39 pm
News
Macquarie-shares-09Feb_1800x1000_Finder

Shares in Australia’s biggest bank are still down 13% over the past 6 months.

Australia’s biggest lender, Commonwealth Bank (ASX: CBA) is topping the list of gainers on the ASX on Wednesday. The stock had climbed nearly 5% to $98.86 at the time of writing.

It was also leading other banking shares higher, with ANZ (ASX: ANZ), Westpac (ASX: WBC) and National Australia Bank (ASX: NAB) rising between 0.8% and 2.2%.

Why has the CBA stock price jumped

CBA shares have lifted after the Big Four bank outlined stronger than expected half year results on Wednesday.

Australia’s biggest lender said its net cash earnings for the 6 months to 31 December jumped 23% to $4.7 billion. Statutory net profit was also 26% higher from the same period last year, while revenue rose 3% to $12.26 billion.

The solid profit growth came thanks to "continued volume growth across the business in home lending, business lending and deposits, flat operating costs and significantly lower loan impairment expense," CEO Matt Comyn said.

It also came despite the lender recording a sharp drop in its net interest margin, which is how much it earns on loans after funding and other costs.

CBA said its NIM in the 6-month period fell 14 basis points compared to the June half, to 1.92%. This was mainly because customers switched to fixed rate home loans, as well as rising competition in the home loan market.

The company also points to rising interest rates and swaps as a potential headwind.

Despite margins declining, CBA still managed to lift its net interest income by 1.5% as it grew faster than the industry average rates in the key home and business loan markets as well as in household deposits.

Strong outlook

CBA expects the pressure on margins to continue in the second half of this financial year as home loan customers in particular prepare for an increase in interest rates for the first time in years.

Still, it is counting on the economy having a strong year in 2022. Mr Comyn expects the Australian economy to bounce back from the early challenges of the Omicron strain of COVID-19.

“Australian households have accumulated savings and stronger wage growth is expected,” he said, indicating that this will buoy spending which would be beneficial for lenders like CBA.

Likely keeping that in mind, the bank announced it would expand its on-market share buyback by another $2 billion, and hand out $1.75 a share in interim dividend, giving investors another boost. This comes on top of its massive $6 billion share buyback announced in October.

Post the buyback, CBA expects its common equity tier 1 (CET 1) capital ratio to drop to 11.4%, still well above the banking regulator’s 10.5% "unquestionably strong" threshold.

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