CBA profit accelerates despite plunging investor loans
Rising interest rates and property tax changes have put a dent in home loan demand at Australia’s largest lender, but that didn’t stop profits rising to a new record high.
Commonwealth Bank on Wednesday reported a full year profit of $10.98 billion, which was up 7% on the previous financial year and the biggest result ever recorded by an Australian bank.
The surge in profit came despite decreased home loan demand following this year’s interest rate hikes and property tax changes that disincentivised property investment, which caused home prices to fall.
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Australia's largest lender Commonwealth Bank reported a record profit of almost $11 billion. Picture: Getty
The bank reported a 15% decline in loan application volumes since May, when property tax changes were unveiled in the federal budget, with investors representing the biggest chunk of this decline.
Investor loan applications dropped by 28% since May, compared with a 9% drop in owner-occupier applications over the same period.
However, CBA chief executive Matt Comyn said application numbers have stabilised in recent weeks.
Despite the recent decline in activity, CBA’s total volume of home loans grew by 7.2% in the financial year to $680 billion.
But the bank has forecast overall housing credit growth to slow to about 4-6% next financial year.
The lift in profits came despite a 0.03 percentage point decrease in its net interest margin to 2.05%, reflecting strong competition in the sector.
The net interest margin is the difference between the interest earned from lending money to borrowers and the interest paid to depositors, and is a crucial measure of profitability.
Commonwealth Bank is the nation’s largest lender, holding about a quarter of Australia’s home loans, and its results often serve as a barometer for the health of the broader lending market.
CBA's record profit result came after rival Westpac revealed a 20% drop in loan applications when it released its results on Monday.
It also follows the Reserve Bank's decision to leave interest rates on hold this week following the release of cooler than expected inflation data.
CBA doesn’t expect interest rates to change for the rest of the year, but has forecast one rate cut by June next year.
High interest rates and inflation take a toll
Mr Comyn said high interest rates were having the intended effect of slowing household consumption and the economy.
However, he said high interest rates and inflation had placed “uneven pressure on household incomes”, and flagged that the number of home loan customers in hardship had increased in the past six months.
CBA chief executive Matt Comyn said housing activity has moderated and arrears were rising from low levels.
CBA said arrears were increasing as borrowers faced cost of living and interest rate pressures, with 1.33% of home loans in arrears by more than 30 days, and 0.73% of loans were in arrears by more than 90 days.
This was up from 1.26% and 0.7% at the end of the previous financial year.
Despite the recent downturn in property prices, CBA estimated just 0.5% of its loans were in negative equity – a figure that has declined over the past year.
Negative equity is when the outstanding balance on a loan exceeds the property value.
The Reserve Bank held interest rates steady this week after raising rates three times this year, but RBA governor Michele Bullock said the board did not discuss cutting rates at its August meeting. Picture: Getty
Of those borrowers in negative equity, 84% were in NSW and Victoria, aligning with recent data showing prices in Sydney and Melbourne have fallen more than the other capitals, declining by about 4% since peaking in late 2025.
Even though arrears were rising, the bank said 85% of its mortgage customers were ahead on repayments, including 68% of those in negative equity.
'Deeper housing challenge' overshadows price falls
Mr Comyn said the recent downturn in house prices was overshadowed by a more significant problem - the nation’s housing supply shortfall.
“There is understandably a lot of focus on short term movement in house prices given they represent a large share in household wealth,” he said.
“Australia's deeper housing challenge is our inability to build enough homes quickly and affordably.”
Commonwealth Bank has flagged Australia's inability to build homes quickly and affordably as a concern. Picture: Getty
The gap betweeen Australia's population growth and the rate at which new homes are being built has underpinned home values through previous cycles, with demand outweighing supply.
While the recent property tax changes abolishing negative gearing made exceptions for new builds in a bid to boost construction, Treasury modelling shows the new rules would result in 35,000 fewer homes being built in the next 10 years.
CBA said rising construction costs since the outbreak of the war in Iran, a mismatch between housing approvals and completions, and a long-term decline in construction productivity were challenges impeding a much-needed boost to supply.