Rising Risk-Weighted Assets Pressure CBA’s Leverage Ratio Despite Capital Gains
Commonwealth Bank of Australia reported a 33 basis point increase in its CET1 capital ratio for Q3 2025, driven by earnings growth despite a rise in risk-weighted assets. Liquidity and leverage metrics remain robust, underscoring the bank's resilient capital position.
- CET1 ratio increased to 11.8% in Q3 2025
- Total risk-weighted assets rose by $5.3 billion to $501.4 billion
- Leverage ratio declined slightly to 4.5%, above regulatory minimum
- Liquidity Coverage Ratio averaged 133%, Net Stable Funding Ratio at 116%
- Credit risk exposures and non-performing loans remain stable across sectors
Capital Strength and Regulatory Compliance
The Commonwealth Bank of Australia (CBA) has released its Pillar 3 Capital Adequacy and Risk Disclosures for the quarter ended 30 September 2025, revealing a modest but meaningful improvement in its Common Equity Tier 1 (CET1) capital ratio to 11.8%. This increase of 33 basis points was primarily fueled by capital generated from earnings and minor regulatory adjustments, offset partially by a net rise in risk-weighted assets (RWA).
These disclosures, prepared under the Basel III framework and Australian Prudential Regulation Authority (APRA) standards, provide a comprehensive view of CBA’s capital adequacy, risk exposures, leverage, and liquidity positions. The report underscores the bank’s commitment to maintaining a strong capital base while navigating evolving regulatory requirements.
Rising Risk-Weighted Assets and Credit Risk Dynamics
Total RWA increased by $5.3 billion to $501.4 billion, driven mainly by growth in credit risk and operational risk components. Credit risk RWA rose by $2.0 billion, reflecting volume growth in domestic residential mortgages, commercial portfolios, and exposures in New Zealand and financial institutions. Additionally, methodological changes, including a self-imposed residential mortgage risk weight floor increase, contributed $2.0 billion to the rise.
Despite these increases, credit quality improvements, foreign currency movements, and other factors helped offset some of the upward pressure on RWA. Non-performing exposures and provisions remained stable across industry sectors, indicating that asset quality has not deteriorated materially during the quarter.
Leverage and Liquidity Metrics Remain Robust
The bank’s leverage ratio declined slightly to 4.5% due to the impact of the 2025 final dividend and higher total exposures but remains comfortably above the 3.5% minimum required for IRB banks. This signals prudent capital management amid expanding balance sheet exposures.
Liquidity positions strengthened, with the Liquidity Coverage Ratio (LCR) averaging 133%, well above the regulatory minimum of 100%, and the Net Stable Funding Ratio (NSFR) rising to 116%. These metrics reflect CBA’s strong liquidity buffer and stable funding profile, supported by growth in customer deposits and effective management of wholesale funding maturities.
Outlook and Regulatory Context
The disclosures also highlight ongoing regulatory developments, including the recent implementation of revised standards for interest rate risk in the banking book (APS 117), with related disclosures expected in the December 2025 report. The bank’s use of advanced internal ratings-based approaches for credit risk and adherence to APRA’s prudential standards position it well to manage capital efficiently while meeting regulatory expectations.
Management attested to the accuracy and completeness of the disclosures, reinforcing confidence in the bank’s risk management and capital adequacy frameworks.
Bottom Line?
CBA’s steady capital and liquidity metrics amid rising risk exposures set the stage for close monitoring of credit trends and regulatory impacts in the coming quarters.
Questions in the middle?
- How will upcoming APS 117 disclosures on interest rate risk affect CBA’s capital requirements?
- What are the implications of the rising operational risk RWA for future capital buffers?
- How might changes in the residential mortgage risk weight floor influence lending strategies?
