CBA’s $10.25bn cash profit on lending growth, ChatGPT deal with OpenAI
The nation’s biggest bank highlighted stable lending margins as a strong contributor to annual earnings growth, which came in slightly short of market expectations.
Commonwealth Bank boss Matt Comyn said solving housing affordability is one way out of the economy’s productivity slump, after riding a boom in business and home lending to a $10.25bn profit.
The head of Australia’s largest bank said the fundamentals are in place to foster an era of productivity gains, “including a healthy labour market, steady immigration and ongoing public sector investment” but a shortfall in housing supply was an easy fix that remained elusive.
“The objectives are really clear and the importance of what productivity is and how it underpins improvement in living standards over the long term,” he told The Australian. “There’s a whole range of different elements within that, from obviously housing and policy and housing affordability. We think that’s a really significant issue.”
He was hopeful the discussions at next week’s productivity roundtable with Treasurer Jim Chalmers set an enduring agenda, and were not “constrained to what could be achieved in the next three years”.
CBA reported a 4 per cent lift in annual cash earnings, as troubled debts receded with the benefit of lower interest rates, ruling off its 2025 financial year.
CBA’s earnings came in flat against its first half result, but ahead of the 2024 financial year.
Mr Comyn said the savings gap between younger and older customers was narrowing as inflation eased, the stage three tax cuts wove their way through, and monetary easing loosened financial conditions.
He said many households were now experiencing a rise in disposable income based on CBA data which showed evidence of higher discretionary spending and growing consumer confidence.
The Reserve Bank slashed the cash rate 25 basis points on Tuesday, the third time rates have been cut this year. The cash rate has fallen from 4.35 per cent to 3.6 per cent over the last 12 months.
The banking major revealed a new deal with OpenAI in a bid to secure a moat in smart banking.
Statutory net profit rose by 7 per cent to $10.13bn with CBA declaring a final dividend of $2.60 a share, fully franked, taking the total for the year to $4.85.
The bank also announced it would extend its $700m on-market buyback for a further 12 months, after repurchasing just $18m of its shares over the last financial year.
Chief financial officer Alan Docherty said the bank’s leadership “still see value” in the buyback, which was announced in August last year.
CBA has returned $9.3bn to shareholders via buybacks since 2022, repurchasing shares at an average price of $92.41.
Its balance sheet meanwhile benefited from a walk-back in troubled home loans, along with an expansion in its business lending book.
Home lending lifted 6.1 per cent over the 12 months, although this was sluggish in the second half of the financial year when it rose only 2.8 per cent as CBA trailed its rivals.
Business lending jumped 12.2 per cent over 12 months, although the bank walked away from several deals which were not profitable amid hot competition at the top of the market.
Net interest margin, a measure of profit, was up 8 basis points over the financial year to 2.08 per cent, but flat on levels recorded in the first half.
CBA now controls 24.6 per cent of the home loan market and 26.4 per cent of all deposits.
And the bank now writes 66 per cent of all its home loans in-house.
But, CBA also saw a fall in its share of the banking market, with Barrenjoey analyst Jon Mott questioning how it was willing to forego its turf.
CBA still represents the main bank for almost 1 in 3 Australians, but across all age brackets over the past year that number is lower.
Mr Comyn told an investor call it was a key focus of the new financial year to lift this share.
“We’re not entirely satisfied,” he admitted.
Mr Comyn said the bank had done well from the recent migration wave, particularly winning Indian arrivals. New Zealand and British migrants were less keen on the CBA brand.
Higher operating costs and inflation also dragged on the result, despite its embrace of AI.
CBA announced a deal with maker of ChatGPT, OpenAI, on Wednesday and plans to boost its existing relationship with Anthropic.
This comes as rival lenders scope out their own forays into AI.
CBA and OpenAI engineers will work together with a focus on scams and fraud detection, as well as delivering more personalised services for customers. Bank staff will get access to OpenAI’s advanced enterprise grade tools under the deal.
CBA will also invest in training.
The Finance Sector Union has criticised the bank over job cuts after the introduction of AI to call centres, and its offshoring of roles to India.
The FSU said CBA’s headcount in India had lifted by 21 per cent over the year, and 138 per cent since the bank first start reporting the figure in 2022. This is compared to a 2.7 per cent fall in Australian-based roles.
FSU national secretary Julia Angrisano warned CBA was “systematically undermining local workers”.
“CBA publicly preaches productivity and innovation while quietly eroding local jobs. This hypocrisy cannot go unchallenged,” she said.
UBS analyst John Storey said the market would be disappointed by CBA’s guidance for the coming year and “the lack of signs of acceleration in the key retail segment”.
Milford investment analyst Minh Pham said CBA’s valuation was “the sticking point”
“This result may not be enough to justify the record multiples,” he said in reference to how the sharemarket values the stock.
Shares in CBA slumped 5.4 per cent or $9.68 to $169.12.
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