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Commonwealth Bank of Australia
- Sector: Financial Services
- Sub Sector: Banks
- Region: Australia
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Fundamental View
AS OF 28 Mar 2025CBA has a very strong franchise in Australia; it is the leader in the retail market and is making good progress in challenging NAB in business banking.
It has been the best managed of the Australian banks for many years, and has outperformed peers. It lost some of its luster in the latter part of the 2010s due to regulatory and compliance lapses amid charges of complacency, but has since improved into a better institution.
Its capital and liquidity position is robust, while asset quality is strong.
Business Description
AS OF 28 Mar 2025- Originally established by the Australian government in 1911, CBA functioned for some time as Australia's central bank until the establishment of the Reserve Bank of Australia in 1959. It remained under government ownership until the early 1990s, after which it underwent a transformation from a bureaucratic public sector bank into a widely respected commercial organisation.
- Over the past twenty years, CBA has consolidated its position as the leading bank in Australia with a 24-28% share in household deposits and lending, helped by its acquisition during the 2008 crisis of Bank of Western Australia.
- In New Zealand it owns ASB Bank, but otherwise has been selling non-core assets, including its life insurance business.
Risk & Catalysts
AS OF 28 Mar 2025CBA’s financial health is closely linked to the Australian economy, in particular retail credit quality, mainly housing loans.
Earnings/NIMs are under pressure from strong mortgage market and deposit competition. Business banking growth however has been stellar and highly profitable.
Losses on housing loans have been minimal; the low stock on the housing market has led to home prices rising from Mar-23 onwards, contrary to expectations. Low rental vacancy rates (1%) and low unemployment rates (~4%) have been very supportive of asset quality. House prices are currently going through a soggy patch, but we are not concerned.
Key Metric
AS OF 28 Mar 2025| AUD mn | Y21 | Y22 | Y23 | Y24 | 1H25 |
|---|---|---|---|---|---|
| Return on Equity | 11.7% | 12.7% | 14.0% | 13.6% | 13.8% |
| Total Revenues Margin | 2.3% | 2.1% | 2.2% | 2.2% | 1.1% |
| Cost/Income | 47.0% | 46.3% | 43.7% | 45.0% | 45.2% |
| APRA CET1 Ratio | 13.1% | 11.5% | 12.2% | 12.3% | 12.2% |
| International CET1 Ratio | 19.4% | 18.6% | 19.1% | 19.1% | 18.8% |
| APRA Leverage Ratio | 6.0% | 5.2% | 5.1% | 5.0% | 4.9% |
| Impairment Charge/Avg Loans | 0.1% | (0.0%) | 0.1% | 0.1% | 0.0% |
| Gross Impaired Loans/Total Loans | 0.4% | 0.3% | 0.4% | 0.4% | 0.5% |
| Liquidity Coverage Ratio | 129% | 130% | 131% | 136% | 127% |
| Net Stable Funding Ratio | 129% | 130% | 124% | 116% | 116% |
CreditSight View Comment
AS OF 06 Mar 2025CBA operates like a well-oiled machine in the Australian banking market. It has the leading position in mortgages and deposits, and is challenging NAB in business banking. An AUSTRAC penalty in 2018 damaged its reputation and remediation costs impacted earnings for a couple of years. The bank sold a number of its non-bank business and equity investments to simplify and focus on its core domestic businesses. Strong mortgage market and deposit competition had capped NIMs despite higher cash rates. Business banking growth has been stellar and highly profitable. Asset quality is comfortable and capital robust. It is our preferred name amongst the Aussie banks. Its seniors are tight but its 03/34 Tier 2 trades fair.
Recommendation Reviewed: March 06, 2025
Recommendation Changed: October 05, 2016
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