Investors have punished Commonwealth Bank shares after the lending giant said fierce price competition in the crucial home loan market was eroding its profit margins, detracting from earnings growth in the latest quarter.
In a trading update on Wednesday morning, Commonwealth Bank said cash profits rose by a fifth to $2.2 billion in the three months to September compared with the same period last year.
However, profits were weaker than in more recent quarters, and the market seized on the bank’s comment that its net interest margin – which compares funding costs with what the bank charges for loans – was “considerably lower”. CBA shares opened sharply lower on the ASX and traded down 5.6 per cent at $101.61 by mid-morning.
CBA chief executive Matt Comyn.
The bank said it had continued to gain market share in mortgage and business lending, its costs fell 1 per cent and bad debt charges remained at historically low levels.
But managing director of White Funds Management, Angus Gluskie, said these positives were outweighed by the squeeze on the net interest margin.
“What it suggests is that the competition out there is reasonably strong on the home loan front,” he said.
The high valuation on CBA shares may have also influenced the extent of the share price fall, he added.
“It’s certainly much more expensive than the other banks, so it may be sensitive from that perspective,” Mr Gluskie said. “Clearly expectations were for a stronger figure.”
Margins have been falling across the sector as banks slash their interest rates for new customers in an attempt to expand loan portfolios, and as lenders struggle to cut their deposit interest rates any lower because they are already new zero.
CBA shares plunge as home loan battle puts the squeeze on profit margins
Source: Philippines Alive
