‘Framing the downside’: All eyes on CBA as market hones in on outlook

Dive said he will be looking closely at CBA’s net interest margin and the loan losses. He predicted there would not be much margin expansion, and less loan losses than others are predicting.

“Historically, banks have done quite well in that rising rate environment, we’ve seen a decade of headwinds from rates falling. We think that the loan losses will be less than many are forecasting,” he said.

“The previous cycles have been with much higher levels of unemployment and significant corporate collapses. High levels of employment will mitigate against bad debts at the levels seen in other tightening cycles, such as 1991 and 2008.”

Morgan Stanley equity analyst Richard Wiles said in a note that he expected a good second-half result for CBA and an “even better near-term earnings outlook”, but flagged commentary on margin tailwinds, loan growth prospects and the economic outlook as key issues.

Goldman Sachs analysts said they expected the market to focus on any updated commentary about the leverage of the banks net interest margins to cash rate rises. They expect CBA to pay a 205 cents per share fully franked final dividend.

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“For us, the key focus will be around how CBA frames its downside and severe scenarios as part of its expected credit losses modelling, which we suspect will need to shift from scenarios based around covid-lockdowns, to be more focused around stagflation,” they said.

JP Morgan analyst Andrew Triggs said, “all eyes are on the net interest margin outlook given rate hikes”.

He said they expect a mixed result from CBA, with strong loan growth and immaterial loan losses. He predicted a slight net interest margin decline in the second half, but an improved margin in the fourth quarter with the early benefits of rate rises.

The main area of focus will be on net interest margin outlook commentary, he said, with CBA possibly giving more specific guidance on rate leverage. He said they would also be looking for any early signs of stress in the books from rising interest rates.