CBA: The Rise and the Fall

Commonwealth Bank of Australia (CBA) announced today that the company earned $1.75 billion unaudited cash profit for the first quarter of the financial year, making this year's earnings better compared to the $1.6 billion last year.

Despite the challenging environment, CBA managed to make it through. Chief Executive Officer Ralph Norris said, “"Given the volatile operating environment and economic uncertainty, the group continues to retain its conservative business settings, with capital, provisioning, funding and liquidity levels all remaining strong."

However, the market volatility connotes that the trading income was $60 million below the long term average.

"As we indicated at our full year results announcement in August, operating conditions remain challenging," Norris said.

CBA's underlying net interest margin (NIM) fell in the three months to September because of high holdings of liquids assets.

The bank's shares have declined by 1.8 per cent this year as well as its largest rivals Westpac Banking Corp. (fell by 5.2 per cent) and Australia & New Zealand Banking Group (fell by 11.5 per cent).

CBA explained that tight competition and the rising cost of funds are the factors that put pressure on the margins.

Norris also added, "The global economic recovery remains fragile, highlighted by ongoing sovereign debt concerns in the eurozone and an uncertain growth outlook in the US.

“Whilst the Australian economy continues to perform relatively well, consumer and business confidence remains fragile, most noticeably reflected in subdued system credit growth."