How Did CBA Achieve 2% Profit Growth Amid Rising Costs and Margin Pressure?

• Cash NPAT up 2% to ~$2.6 billion in 1Q26
• Operating income rose 3% driven by volume growth
• Operating expenses increased 4% excluding restructuring
• Loan impairment expense stable at $220 million
• Strong CET1 ratio of 11.8%, well above regulatory minimum

Solid Financial Performance Despite Economic Headwinds

Commonwealth Bank of Australia (CBA) has reported a steady start to the 2026 financial year with a 2% increase in cash net profit after tax (NPAT) to approximately $2.6 billion for the quarter ended 30 September 2025. This growth was underpinned by robust lending and deposit volume expansion, even as the bank faced margin compression and rising operating costs.

Operating income rose 3%, buoyed by higher net interest income and increased fees, reflecting strong momentum in both business and household lending. Home loans grew by $9.3 billion, outpacing system growth at 1.1 times, while household deposits surged by $17.8 billion, 1.2 times system growth. The bank also expanded its business banking franchise, increasing transaction accounts by 7% year-on-year.

Margin Pressure and Cost Inflation

Despite volume growth, CBA’s headline net interest margin declined slightly due to a shift in asset mix towards lower-yielding liquid assets and institutional repos. Excluding these effects, the underlying margin softened modestly amid competitive pressures and a lower cash rate environment. Operating expenses rose 4% excluding restructuring and notable items, driven by wage inflation and higher IT vendor costs, partially offset by productivity gains and seasonal reductions in vendor spend.

Credit Quality and Provisioning Remain Strong

The bank maintained a cautious stance on credit risk, with loan impairment expense steady at $220 million, representing 9 basis points of average gross loans and acceptances. Consumer arrears improved across home loans, personal loans, and credit cards, benefiting from easing financial pressures due to lower interest rates and inflation. Corporate troublesome and non-performing exposures declined slightly to $6.2 billion, or 0.94% of total committed exposure. Total credit provisions remained broadly flat at $6.4 billion, ensuring strong coverage amid ongoing geopolitical and macroeconomic uncertainties.

Robust Capital and Funding Position

CBA’s capital position remains resilient with a Common Equity Tier 1 (CET1) ratio of 11.8%, comfortably above the Australian Prudential Regulation Authority’s (APRA) minimum of 10.25%. The ratio improved by 33 basis points during the quarter, reflecting strong organic capital generation before dividend payments. The bank raised $16 billion in long-term wholesale funding this financial year, maintaining a conservative funding profile with customer deposits representing 79% of total funding. Liquidity metrics such as the Liquidity Coverage Ratio (LCR) and Net Stable Funding Ratio (NSFR) remained well above regulatory minimums.

Outlook and Strategic Focus

CEO Matt Comyn acknowledged the ongoing challenges posed by cost-of-living pressures and geopolitical uncertainty but expressed optimism about Australia’s economic resilience and recovery. The bank remains focused on disciplined execution of its strategy, investing in technology to enhance customer experience, and navigating increased competitive intensity within the financial sector. Dividend payments of $4.4 billion in the quarter benefited over 800,000 shareholders, underscoring CBA’s commitment to delivering shareholder value.

Bottom Line?

CBA’s strong capital and funding foundations position it well to navigate evolving economic and competitive challenges ahead.

Questions in the middle?

• How will margin pressures evolve amid ongoing competition and a low interest rate environment?
• What impact will geopolitical tensions have on credit quality and provisioning in coming quarters?
• How aggressively will CBA pursue growth in business banking versus risk management?