By Gareth Vaughan
Annual results from Australasia's biggest bank, Commonwealth Bank of Australia (CBA), are expected to show a slowdown in the recent aggressive lending growth recorded by its New Zealand subsidiary ASB.
CBA, which also owns insurer Sovereign, is due to report annual financial results on Wednesday, August 14.
CBA, who analysts expect to report a A$500 million, or 7%, increase in annual cash earnings to a fresh record high, has this week seen its share price reach record highs.
The consensus of analysts' expectations (see full details in the table below) is for CBA to post cash earnings for the year to June 30 of A$7.6 billion (about NZ$8.6 billion), comfortably topping last year's A$7.1 billion.
The bank's expected to increase its final dividend by A3 cents a share to A$2.
JP Morgan analysts forecast CBA will pay out 78% of annual profit in dividends, near the top of its 70% to 80% target range.
*Source JP Morgan
NZ lending growth to slow
In a research note JP Morgan's Scott Manning, Bharat Anand and Vineet Ahuja suggest CBA's New Zealand subsidiaries, which account for 10% of group lending, will deliver lower lending growth in the months ahead.
General Disclosure Statements show ASB grew home loans by NZ$1.7 billion over the December and March quarters, combined. In terms of volume growth, ASB was first in the December quarter and second to ANZ in the March quarter. And figures released in CBA's interim results in February showed ASB's home lending rose NZ$1.269 billion in the six months to December 31, or 3.4%, to NZ$38.679 billion.
In February, ASB reported 12.7% and 9.4% growth, respectively, in half-year rural and business lending. Such growth levels were well ahead of overall market growth, with Reserve Bank sector credit showing agriculture lending up 2.4% through the first-half of ASB's financial year, and business lending rising only about 0.7%.
"Going forward, we expect rates of growth to soften especially in relation to housing credit noting the upcoming implementation of macro-prudential policy by the Reserve Bank, which aims to curb lending to high loan-to-value (LVR) ratio segments and moderate house price growth," the JP Morgan analysts say.
The Reserve Bank has said it's "seriously considering" using macro-prudential tools to help moderate house price inflation pressures, with restrictions on banks' high LVR loans the tool with the best scope to dampen the current strong demand for housing, as well as reduce risk to bank balance sheets.
In the March quarter 71% of ASB's residential mortgage growth came from high LVR lending, more than any other major bank.
Strong first-half for ASB
In February ASB said net profit after tax for the six months to December 31 fell NZ$7 million, or 2%, to NZ$365 million from its record half-year profit of NZ$372 million in the previous comparable period. Half-year cash earnings rose NZ$24 million, or 7%, to NZ$348 million. ASB's net interest margin rose 6 basis points from June to December to 2.22%.
And ASB last year posted its second consecutive record annual profit, with net profit after tax for the year to June 30, 2012 up NZ$117 million, or 21%, to NZ$685 million.
Meanwhile, CBA's share price reached new highs this week, rising above A$74, giving it a market capitalisation of A$120 billion. Manning, Anand and Ahuja say CBA shares now trade at "the most expensive premium in our coverage universe." They suggest the bank's "traditional ramp up during this cum-dividend period" appears to have largely run its course, with the stock due to go ex-dividend on August 19.
The recent rally in CBA's share price comes after some banking analysts, including those at Macquarie, called an end to the dividend yield-driven rise in the share prices of the big Australasian banks in June amid talk of the US Federal Reserve tapering off its massive quantitative easing programme.
*Source ASX.
Australian major bank valuation metrics
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