Commonwealth Bank of Australia Ltd chief executive Matt Comyn expects the Reserve Bank of Australia (RBA) to cut interest rates next week as domestic inflation trends lower and global volatility persists. The bank also anticipates further rate reductions later in 2025, citing current macroeconomic conditions and subdued inflation falling within the RBA’s 2–3% target band.
Comyn said the RBA is likely to acknowledge the current economic uncertainty when it meets next week, but expects the primary focus to be on falling inflation. “We certainly still think it’s likely that they will reduce by 25 basis points,” he said, noting that while markets had considered the possibility of a larger cut, it was “incredibly unlikely”. Financial markets have priced in at least three rate cuts over the year, a view Comyn said felt “about right”, although the final outcome would hinge on incoming economic data.
Quarterly profit lifted by business lending growth
CBA reported a March quarter cash net profit of A$2.6 billion, up 6% year-on-year, supported by strong business lending and stable margins. While Comyn acknowledged geopolitical risks and cost-of-living pressures, he said Australia remained well-positioned to navigate the global economic headwinds.
The bank capped a series of bank earnings updates with a third-quarter result showing a 6% increase in cash net profit after tax compared to the same period last year. The unaudited result was broadly in line with the average of the previous two quarters. Operating income rose 1%, underpinned by lending growth and stronger trading income, while expenses also increased 1%. Shares in CBA rose 0.6% in early trade following the update.
Cost-of-living pressures impact households
Comyn described the environment as a “challenging period” for households and businesses, with the bank supporting affected customers. He noted the positive role of government investment in bolstering employment and growth, but highlighted risks to the domestic economy stemming from global uncertainties. “There is heightened risk to the global economy from geopolitical and macroeconomic uncertainty which could slow the domestic economy,” he said.
Arrears rise modestly but remain manageable
CBA reported a modest rise in loan arrears during the quarter. Home loan arrears rose 5 basis points to 0.71%, while personal loan arrears climbed 19 basis points, in line with seasonal patterns. Comyn said the bank remained “very comfortable” with the levels, as arrears had been expected to trend higher.
Margins steady as business lending outpaces rivals
Despite pressure on margins across the sector, CBA’s net interest margin held stable after excluding one-off earnings. The bank also increased its share of new mortgage lending via proprietary channels to 68%, a proportion higher than its peers. UBS analyst John Storey noted this would have benefited CBA’s retail performance. Business lending grew at 1.3 times the industry average, which Comyn said aligned with CBA’s strategy to continue expanding in this segment.
Highlights
- Unaudited statutory NPAT of ~$2.6 billion2 in the quarter. Unaudited cash NPAT of ~$2.6 billion2,3 flat on 1H25 quarterly average and up 6% on the prior comparative quarter.
- Operating income up 1% driven by lending volume growth and higher trading income, largely offset by two less days in the quarter. Excluding non-recurring earnings, net interest margin was stable.
- Operating expenses up 1% driven by increased investment in technology and frontline staff, partly offset by two less days in the quarter and the benefit of ongoing productivity initiatives.
- Operating performance up 1% on the 1H25 quarterly average, up 6% on the prior comparative quarter.
- Loan impairment expense of $223 million, with collective and individual provisions slightly higher. Portfolio credit quality has remained sound, with increases in consumer arrears and corporate troublesome and non-performing exposures.
- Strong balance sheet settings maintained, with a customer deposit funding ratio of 77%, LCR of 133%, and NSFR of 116%.
- A$36 billion of new long-term wholesale funding has been issued across multiple markets and products, completing our FY25 funding task.
- CET1 (Level 2) ratio of 11.9%, up 45bpts before the payment of $3.8 billion in 1H25 dividends to ~814,000 shareholders, reflecting strong organic capital generation.