---
endpoint: analytics
pattern: Financial Services
status: done
latency_ms: 186635
conversation_id: 5286cb1f-2e5b-4755-a405-cbf5e37f8362
citations: 18
created: 2026-05-31 20:44:14Z
---

# Provide a one‑year narrative of CBA, outlining how business performance, market conditions, and company actions shaped investor sentiment and valuation.

# Commonwealth Bank of Australia (CBA): A One-Year Narrative (Mid-2025 to May 2026)

CBA's last twelve months have been a study in franchise dominance against a backdrop of intense competitive pressure, an Australian rate cycle that turned twice (cuts in FY25, then a hike back to 3.85% in 1H26), and a "premium valuation" debate that has dogged the stock for the entire period. The earnings power held up, capital was returned aggressively, and management leaned harder on technology and AI — but the second half of FY26 introduced the first credible cracks in the benign credit story, with provision top-ups, rising arrears, and a 70bp drawdown in CET1.

---

## Phase 1 — FY25 Result (August 2025): Strong franchise, but the first MFI scare

CBA closed FY25 with what management itself characterized as a year of **"broadly flat NIMs with the replicating portfolio offsetting deposit competition and the impact of lower rates"** [9]. The structural tailwind from the equity hedge was effectively over — flagged at the FY25 call as a known headwind into FY26, with only the five-year replicating portfolio still providing offset [9].

The result also delivered the first genuine investor scare on retail franchise health. The Retail MFI share — long the keystone of the CBA bull case — **"fallen very sharply over the last six months, basically across every category"** in the eyes of analyst Jonathan Mott, prompting CEO Matt Comyn to acknowledge **"it hasn't been a strong year in our retail MFI share. We think a lot of the factors are around competitive intensity"** [10]. Comyn cited weaker migrant origination (down 11%), sharper cash-back offers in youth/young-adult segments, and Bankwest migration noise.

This was the first material sentiment dent in the cycle: peers (notably ANZ and Macquarie) appeared to be eating into CBA's deposit and youth franchise just as the equity-hedge benefit rolled off.

---

## Phase 2 — 1Q26 Trading Update (November 2025): The NZ legacy bill arrives

The 1Q26 update on **11 November 2025** included a notable item that the market had been watching: **"the settlement of the ASB Credit Contracts and Consumer Finance Act (NZ) class action proceedings (NZ$136 million)"** [18]. While ringfenced within ASB, it reset the disclosed FY26 notable-items base and reminded investors that legacy compliance/remediation risk had not fully left the Group.

---

## Phase 3 — 1H26 Result (February 2026): The "best balance-sheet half since 2008"

The half-year report released on 11 February 2026 was the cleanest data point of the year for the bulls. Headlines:

| Metric | 1H26 | Change vs PCP |
|---|---|---|
| Cash NPAT | ~$5.4bn [5] | +6% [1] |
| Operating income | — | +6.6% [5] |
| Operating expenses (underlying) | — | +5.5% [5] |
| Interim dividend (fully franked) | A$2.35 [1] | +A$0.10 [1] |
| CET1 | 12.3% | stable |
| Total provisions | ~A$6.3bn [7] | maintained buffer |
| NIM | -4 bps over the half | mix-driven [6] |

**Volume momentum was extraordinary.** Comyn flagged this as **"our strongest domestic deposit and lending balance growth in a half year since 2008"** [2], with **mortgage balances +A$45bn (7%) and business lending +12% at 1.3x system** over the prior twelve months [2].

**Margins held up better than feared.** The 4bp NIM decline was explained as a mix effect: **"the increased mix of low-margin liquid assets and institutional repos. Excluding those items, margins were 1 basis point lower with competitive pressures and the impact of a lower cash rate largely offset by the replicating portfolio and the favorable portfolio mix effect of strong deposit growth"** [6]. Q2 was actually stronger than Q1, helped by the swap-rate-driven replicating-portfolio uplift [6].

**Business Bank carried the franchise.** Pre-provision profit was up 8% and cash profit up 14%, with **"MFI share increased to 26.9%"** — up 310bp since COVID [4]. This offset some of the retail MFI weakness from FY25 (retail MFI ticked slightly up to **33.5%, but remains below its 35% peak** [3]).

**Notable items of A$170m** — largely the NZ class-action settlement disclosed at 1Q [5] — were the only meaningful negative.

**Shareholder distribution.** The dividend was **fully franked with no DRP discount and fully neutralized via on-market purchases** [8] — the 11th consecutive period [1] of this discipline. Provisioning was kept conservative: **"Total recognized provisions are approximately AUD 6.3 billion"** with a material buffer above the central scenario [7].

This print justified the premium valuation thesis: deposit-led franchise, productivity offsets, and balance-sheet resilience all working in concert.

---

## Phase 4 — Macro Pivot: RBA back into tightening (early 2026)

The macro setup that underwrote the 1H26 result then turned. Comyn flagged at the February call: **"Last week, we saw the Reserve Bank raise interest rates to 3.85% in response to inflation"** [16], with the bank expecting inflation to remain above the RBA's band "for some time, placing further upwards pressure on interest rates."

This was the pivot point. The market that had priced CBA for a low-rate / benign-credit world now had to grapple with rate hikes feeding into household stress — exactly the risk Comyn flagged in the same call.

---

## Phase 5 — 3Q26 Trading Update (13 May 2026): Cracks in the benign credit story

The most recent data point reframed the narrative. The headlines look reassuring on the surface but the underlying compositional read is the first negative inflection of the cycle:

| Metric | 3Q26 | Trend |
|---|---|---|
| Cash NPAT | ~$2.7bn | +1% vs 1H26 Qtr avg; +4% vs 3Q25 |
| Operating income | $7,511m | Flat QoQ [11] |
| NII | — | +1% QoQ [11] |
| Loan impairment | $319m (12bp of GLAA) | +42% vs 3Q25 [15] |
| Forward-looking provisions | +$200m top-up [14] | First material build of cycle |
| Total provision coverage | 1.57% [14] | Up from 1.29% in Mar 25 |
| Home loan balance growth (12m) | $41bn at 1.0x system [12] | Decelerated to system |
| Household deposit growth | $38bn at 1.1x system [12] | Still above system |
| CET1 | 11.6% [13] | -76bps for 1H26 dividend |
| Deposit funding | 79% of total [17] | Maintained |

Three things stand out:

1. **Top-line momentum compressed.** **"Operating income was flat in the quarter, with higher net interest income offset by lower other operating income"** [11]. The lift from the replicating portfolio is no longer enough to drive sequential acceleration.

2. **Home-lending growth normalised to system.** After running 1.3x system at peak, **"For the 12 months to March 2026, home loan balances grew $41 billion at 1.0x system"** [12] — confirming the market view that ANZ, Macquarie and the regionals are clawing back share. CBA chose margin discipline over chasing unprofitable volume — a deliberate trade-off but a deceleration nonetheless.

3. **Provisions turned forward-looking-negative.** Management **"increased the forward-looking component of collective provisions by $200 million or 8bpts of GLAA as we revised our macroeconomic forecasts and increased the weighting of our downside scenario"** [14]. Personal-loan arrears jumped 30bp, home-loan arrears +6bp, and corporate TNPE rose to A$6.5bn or 0.94% of TCE [14]. The loan-loss rate of 12bp in 3Q26 is double the 6bp 1H26 print — the benign-credit chapter that defined FY24-1H26 is closing.

4. **Capital compressed.** **CET1 fell from 12.3% to 11.6%** [13], reflecting the A$3.9bn 1H26 dividend (−76bp), higher IRRBB RWA from rising swap rates (−22bp), and credit RWA growth from above-system commercial lending. Still well above APRA's 10.25% minimum, but the headroom for buybacks is narrowing.

---

## How Investor Sentiment & Valuation Evolved

The arc of investor sentiment across the twelve months can be summarised as:

| Period | Sentiment driver | Read-through to valuation |
|---|---|---|
| Aug 2025 (FY25) | Retail MFI scare; equity-hedge tailwind rolling off | First sell-side caution flag — CLSA's 20 Jun 2025 "ANZ the one to watch" sector note explicitly framed ANZ as the more interesting trade against the CBA premium |
| Nov 2025 (1Q26) | NZ class-action settlement disclosure | One-time hit absorbed; sentiment unchanged |
| Feb 2026 (1H26) | "Strongest half since 2008" on volume; 14% Business Bank cash-profit growth; +A$0.10 dividend | Premium valuation re-validated — the franchise still earns it |
| Apr–May 2026 (3Q26) | RBA hike to 3.85%; first material forward-looking provision build; home-lending back to 1x system; CET1 down 70bp | Sentiment inflects: the benign-credit anchor of the premium is weakening; debate shifts to whether 18-20x earnings is still defensible if loan losses normalize |

**The structural debate at year-end (May 2026)** is whether CBA's premium PE multiple — long anchored on (i) deposit-funding superiority (79% deposit-funded [17]), (ii) above-system asset growth, (iii) benign credit losses, and (iv) consistent franked dividend accretion — can be sustained now that asset growth is decelerating to system, credit losses are normalizing toward 12bp, and the equity-hedge tailwind has rolled off.

What management has continued to lean on: a deposit-led franchise (deposit funding 79% of total, household deposits +A$38bn in 12 months [17]), continued AI/cloud investment, fortress capital, and the longest unbroken record of fully franked, DRP-neutralised dividends among the majors [8]. What the market has begun to discount: the second derivative of growth is flattening, and the provisioning cycle is turning for the first time post-COVID.

---

**Sources**

[1] Commonwealth Bank of Australia, Q2 2026 Earnings Call — Matt Comyn opening remarks (10 February 2026)
[2] Commonwealth Bank of Australia, Q2 2026 Earnings Call — volume growth commentary
[3] Commonwealth Bank of Australia, Q2 2026 Earnings Call — Retail Bank NPS / MFI
[4] Commonwealth Bank of Australia, Q2 2026 Earnings Call — Business Bank performance
[5] Commonwealth Bank of Australia, Q2 2026 Earnings Call — Alan Docherty reconciliation
[6] Commonwealth Bank of Australia, Q2 2026 Earnings Call — NIM bridge
[7] Commonwealth Bank of Australia, Q2 2026 Earnings Call — provisioning posture
[8] Commonwealth Bank of Australia, Q2 2026 Earnings Call — dividend / DRP framework
[9] Commonwealth Bank of Australia, Q4 2025 Earnings Call — FY25 NIM drivers (12 August 2025)
[10] Commonwealth Bank of Australia, Q4 2025 Earnings Call — Retail MFI debate
[11] Commonwealth Bank of Australia, Q3 2026 Trading Update — operating income (13 May 2026)
[12] Commonwealth Bank of Australia, Q3 2026 Trading Update — volume growth
[13] Commonwealth Bank of Australia, Q3 2026 Trading Update — CET1
[14] Commonwealth Bank of Australia, Q3 2026 Trading Update — provisions and arrears
[15] Commonwealth Bank of Australia, Q3 2026 Trading Update — loan impairment expense
[16] Commonwealth Bank of Australia, Q2 2026 Earnings Call — RBA hike commentary
[17] Commonwealth Bank of Australia, Q3 2026 Trading Update — funding composition
[18] Commonwealth Bank of Australia, 1Q26 Trading Update — ASB NZ class-action settlement (11 November 2025)

## Citations

- [1] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [2] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [3] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [4] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [5] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [6] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [7] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [8] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [9] **Commonwealth Bank of Australia, Q4 2025 Earnings Call, 12-August-2025 8** · external
- [10] **Commonwealth Bank of Australia, Q4 2025 Earnings Call, 12-August-2025 8** · external
- [11] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [12] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [13] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [14] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [15] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [16] **Commonwealth Bank of Australia, Q2 2026 Earnings Call, 10-February-2026 6** · external
- [17] **Commonwealth Bank of Australia, Q3 2026 TU Report** · external
- [18] **06rrqm3hp0w1sn.pdf** · external

