How Is CBA Navigating Rising Loan Risks While Maintaining $2.6B Profit?
Commonwealth Bank of Australia reported a stable $2.6 billion cash profit for the quarter, maintaining strong capital and dividend payouts despite slight increases in consumer arrears and corporate credit risks.
- Unaudited cash NPAT steady at ~$2.6 billion, up 6% year-on-year
- Operating income rises 1% driven by lending growth and trading income
- Loan impairment expense at $223 million with modest arrears increases
- Strong capital position with CET1 ratio at 11.9% before dividends
- Paid $3.8 billion in dividends benefiting over 800,000 shareholders
Steady Profit Performance
Commonwealth Bank of Australia (CBA) has delivered a solid quarterly performance, reporting an unaudited cash net profit after tax (NPAT) of approximately $2.6 billion. This result is flat compared to the first half of FY25 quarterly average but marks a 6% increase on the prior corresponding quarter, underscoring the bank's resilience amid ongoing economic challenges.
Operating income edged up by 1%, buoyed by growth in lending volumes and higher trading income. Notably, the net interest margin remained stable when excluding non-recurring earnings, reflecting disciplined management of pricing and funding costs despite competitive pressures and a shorter quarter.
Rising Credit Risks and Loan Impairments
Loan impairment expenses rose to $223 million, equivalent to 9 basis points of average gross loans and acceptances. This increase was driven by slight upticks in consumer arrears, home loan arrears increased by 5 basis points to 0.71%, and personal loan arrears rose by 19 basis points, alongside a rise in corporate troublesome and non-performing exposures to $6.6 billion. Despite these pressures, the bank maintained strong credit provisioning with a total provision coverage ratio of 1.64%, signaling prudent risk management.
Robust Capital and Funding Position
CBA’s capital position remains robust, with a Common Equity Tier 1 (CET1) ratio of 11.9% before dividend payments, comfortably above APRA’s regulatory minimums. The bank’s funding profile is conservative, with a customer deposit funding ratio of 77% and liquidity coverage and net stable funding ratios well above mandated levels. The issuance of $36 billion in new long-term wholesale funding during the quarter further strengthens the balance sheet.
Shareholder Returns and Strategic Focus
The bank paid $3.8 billion in dividends during the quarter, benefiting approximately 814,000 shareholders directly and over 13 million Australians indirectly through superannuation funds. CEO Matt Comyn emphasized the bank’s commitment to disciplined execution, customer support amid cost-of-living pressures, and sustained investment in technology and frontline staff to drive long-term growth.
While the global economic outlook remains uncertain due to geopolitical tensions and macroeconomic risks, CBA’s conservative balance sheet settings and strong capital generation position it well to navigate potential headwinds.
Bottom Line?
CBA’s steady profits and strong capital buffers set the stage for cautious optimism as credit risks rise.
Questions in the middle?
- Will rising consumer and corporate arrears accelerate in the coming quarters?
- How will competitive pressures impact net interest margins going forward?
- What is the outlook for dividend sustainability amid evolving macroeconomic risks?
