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Shares in Commonwealth Bank (ASX: CBA) are in focus as one of the most traded shares on the ASX came close to slipping out of the $100 member club in early trading on Thursday. Recovering some ground, the stock is up 0.3% at $101.85 at the time of writing.
By comparison, rivals National Australia Bank (ASX: NAB), Australia and New Zealand Banking Group (ASX: ANZ) and Westpac (ASX: WBC) were trading between 0.1% and 1% lower.
What is weighing on the banking stocks?
Some of the bearish sentiment in financial stocks comes after an ongoing sell-off on Wall Street as investors come to grips with rising interest rates from the US Federal Reserve to tackle persistent inflation. That is expected to flow through across the globe and result in generally lower stock valuations.
But the latest dip also comes after CBA on Thursday outlined its third quarter earnings, which show that despite its scale, Australia’s top lender has not been able to escape the competitive pressures in the key home loan market amid a low-rate environment.
CBA posted a better than expected March quarter cash profit of $2.4 billion as continued improvement in economic conditions and a pick-up in business investment helped it grow home and business lending volumes.
Its household and business deposits were up $8.5 billion and $2.2 billion respectively, rising at an above system rate, while business lending grew at 1.5 times the system rate during the period.
But the result is practically unchanged when measured against the average for the first 2 quarters of this fiscal year. It is in fact down 2% from the same quarter last year.
Like its smaller peers NAB, Westpac and ANZ, Commonwealth Bank has also felt the impact on margins, resulting in a 2% decline in net interest income for the quarter.
It said the benefit from volume growth was offset by a lower margin due to a mix of higher swap rates, portfolio competition and ongoing competition in the home loan market. In fact, its home lending growth was in line with peers and came at lower margins, a data point that is not lost on discerning investors.
CBA also said loan impairments and arrears from customers on personal loans, credit cards and home loans have remained low. Nevertheless, it is adopting a cautious approach to potential risks because of higher interest rates, inflationary pressures and supply-chain disruptions by maintaining high credit provisions of $5.7 billion.
The mixed results from the major banks come at a time when they are grappling with higher costs in the form of higher wages, more staff to boost processing times and investment in technology.
CBA CEO Matt Comyn sounded an encouraging note saying the bank would rely on “disciplined execution” of its strategic agenda to continue delivering for customers, communities and shareholders.
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