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CBA cites lower margin in flat Q1 earnings

AAP logoAAP 7/11/2016 Stuart Condie

Commonwealth Bank shares have dipped after Australia's largest lender said a lower net interest margin contributed to its flat first-quarter earnings.

Shares in CBA fell as much as 1.7 per cent on Tuesday after the bank said low interest rates, a stronger Australian dollar and higher insurance claims all contributed to first-quarter cash earnings of $2.4 billion.

CBA said the factors had slowed operating income growth for the three months to September 30 compared to the prior corresponding period.

The bank's shares recovered to $72.08 at 1517 AEDT, but were still down 45 cents, or 0.62 per cent, as the financial sector remained a drag on the market overall.

"That's the concern for the market here: that the pressure we've seen over the last 18 months on bank margins is continuing and CBA wasn't able to resist it," CMC chief market strategist Michael McCarthy said.

"The profit result was OK, but the quality was lower."

Home lending, domestic business lending and household deposits all grew at, or above, system growth, but Commonwealth Bank's net interest margin declined due to higher funding costs.

While loan impairment expenses dropped marginally from FY16, when CBA reported a record $9.45 billion annual profit, the fallout from the mining downturn in parts of WA and Queensland meant impairment expenses for consumer loans rose.

Troublesome and impaired assets rose from $5.5 billion in the prior corresponding period to $6.8 billion, reflecting the impact of lower prices in the New Zealand dairy sector.

CBA's falling share price pulled those of its big four rivals down with it, most notably those of Westpac.

Westpac shares were down 31 cents, or one per cent, at $30.19, giving up about half the gains they made on Monday following the Sydney-based lender's announcement of a $7.822 billion full-year profit.

"It isnt a bad result but it confirmed the fears," Mr McCarthy said.

"Given that NAB and ANZ have fallen either side of the growth ledger in their full-year reporting, this quarterly reporting had a lot more eyes on it."

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