The CBA share price soared 15% in October

The Commonwealth Bank of Australia (ASX: CBA) share price performance was impressive compared to the S&P/ASX 200 Index (ASX: XJO) in October last month.

Looking at the returns, the CBA share price climbed by 15.4% compared to the ASX 200 which went up by 6%. That’s an outperformance of close to 10% in just one month.

CBA is one of the big four ASX bank shares, along with National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ).

The bank didn’t announce anything during the month that was deemed to be price sensitive. However, there were a couple of things that happened that investors may want to take note of.

Annual general meeting (AGM)

An AGM gives a company’s management the chance to tell shareholders about how the last year went and any commentary they want to provide about the outlook.

Investors and the market are often forward-looking. In other words, the future is more important than the past with how that affects the CBA share price.

CBA held its AGM in October.

CBA’s CEO Matt Comyn said that in this uncertain environment, it’s committed to playing its part in supporting the economy, promoting financial stability and encouraging growth. Comyn also said:

Overall, we remain fundamentally optimistic about the medium to long term opportunities for Australia, as well as our capacity to provide support in the immediate future for customers who need us.

Looking ahead, we will continue to invest in the bank’s core retail, business and institutional banking franchises, to reinforce our proposition and extend our digital leadership.

We believe that strong customer engagement and deeper relationships will continue to underpin our ongoing positive performance.

RBA taps the brakes

Before October’s meeting, the Reserve Bank of Australia (RBA) had been increasing the cash target rate by 50 basis points per month.

With how quickly the interest rate was going up, there were two thoughts.

First, the higher interest rates are expected to boost banking lending profitability. That’s because they are hiking the loan rate faster than how much more savers are getting from savings accounts. For the banks, this is good for their short-term profitability.

But, the higher interest rates could also come with a sting in the tail. At the start of the interest rate increases, it could mean that banks make more profit. But, after a while, some households may not be able to keep up with the higher payments. Those loans could go into arrears and then turn into bad debts, which would impact profit for the banks like CBA.

Getting back to the RBA. When the RBA slowed the increase to just 25 basis points (0.25%), that could suggest that the rate increases could stay slower and that the peak of the interest rate will be lower than people were initially fearing.

In other words, CBA could get the bonus of strong lending profits, but not be hit as hard with the bad debts in the future.

Time will tell how the CBA share price reacts when it tells the market in the FY23 half-year result in February 2023 about how much better its lending margins are.

The post The CBA share price soared 15% in October appeared first on The Motley Fool Australia.

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• Here’s what’s putting CBA shares in the headlines this week
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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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