Major bank delivers $2.3 billion first quarter profit

CBA posted a statutory net profit on an unaudited basis for the same period of approximately $2.4 billion, with non-cash items treated on a consistent basis to prior periods.

The lender’s group net interest margin was slightly lower, with improved wholesale funding costs more than offset by competitive pricing impacts, according to yesterday’s ASX announcement.

Credit quality remained sound, with retail arrears flat to slightly improved and impaired assets lower at $3.1 billion.

Total loan impairment expense was $198 million in the quarter, with strong provisioning levels maintained and the economic overlay unchanged, according to the ASX statement.

“Funding and liquidity positions remained strong, with liquid assets of $145 billion, customer deposit funding at 63 per cent and the average tenor of the wholesale funding portfolio at 3.8 years,” it said.

The group’s Basel III CET1 (APRA) ratio as at 30 September 2014 was 8.6 per cent, down from 9.3 per cent at 30 June 2014.

CBA said the decrease in APRA capital ratios during the quarter reflects the impact of the bank’s June 2014 final dividend and an increase in credit risk in the three months to 30 September.

Total risk weighted asset (RWA) increased by 5.6 per cent on the prior quarter to $356.5 billion.

Credit risk RWA increased 4.1 per cent to $301.0 billion, mainly due to a one-off revision to regulatory treatments ($8.2 billion), primarily in relation to the application of Retail Best Estimate of Expected Loss (BEEL), and business growth in most portfolios ($8.2 billion), CBA said.

The lender noted that credit risk RWA increases were partly offset by improved credit quality ($3.0 billion) and the reclassification of some specialised lending exposures to Corporate and SME Corporate ($1.5 billion).

However, the group’s Basel III Internationally Comparable Common Equity Tier 1 (CET1) ratio as at 30 September 2014 was 12.9 per cent.

CBA outlined the major differences between the Basel III APRA and the Internationally Comparable ratios in its Capital Adequacy and Risk Disclosures document, released yesterday.

“APRA requires a minimum Loss Given Default (LGD) floor of 20 per cent to be applied to residential mortgages, compared with the Basel Committee floor of 10 per cent,” CBA said.

"The Internationally Comparable basis has applied an actual LGD level of 15 per cent,” it said.

In addition, CBA highlighted that the Internationally Comparable ratio removes the more conservative risk weighting treatment of specialised lending exposures imposed by APRA.