Commonwealth Bank reports $11bn full-year profit, warns of loan drop-off

Source: News.com.au

Australia’s largest bank has reported an eye-watering profit but warns the economy and mortgage applications are slumping.

In its latest update to the market, Commonwealth Bank reported a 15 per cent slump in loan applications since May.

Loan applications have also dropped 17 per cent from the same time last year.

This coincides with the federal government’s controversial changes to property taxes, including the scrapping of the 50 per cent capital gains tax discount that will be replaced by base indexation and the grandfathering of negative gearing.

Commonwealth Bank is not alone in sounding the alarm on slowing mortgage results.

At the end of July, National Australia Bank said there was a 15 per cent slump in its mortgage applications, while Westpac reported a 20 per cent drop in demand for its mortgages.

Commonwealth Bank chief executive Matt Comyn said despite the falls in mortgage volume, the worst was already behind the bank.

“As you can see the applications did fall but they did stabilise,” Mr Comyn said.

“The weakest week was the first week of June.”

Mr Comyn said credit growth would slow over the next 12 to 24 months, although he still expected mortgages to be up 4 to 5 per cent over the next year.

Mr Comyn said households were being hit by higher inflation and rising rates, but the impacts were not evenly hurting Australians.

According to Mr Comyn, the increase in mortgage repayments has been concentrated among households aged about 25 to 55, and households are consuming fewer goods and services than five years ago as he warns of a slowing economy.

“The Australian economy has remained resilient, supported by historically low unemployment and longer-term investment,” he said.

“However, growth is slowing, with higher interest rates and inflation placing uneven pressure on household incomes and economic activity.

“Housing activity has softened from a high base as application volumes appear to have stabilised in recent weeks.”

The bank has increased its loan impairment expense up 9 per cent to $788m, due to the ongoing cost-of-living reassures, heightened geopolitical issues including in the Middle East and domestic macroeconomic uncertainty.

Mortgage demand unlikely to soften over the long-term

Despite rising costs and fears of a sharp property sell-off, Mr Comyn said the mortgage market was unlikely to continue its slow down.

Since the federal budget was announced in May, the major banks have all noted a rapidly slowing of mortgage demand.

Stopping short of blaming any changes to government policy, Mr Comyn said demand for credit was being hit for several reasons.

“Clearly there is a number of factors contributing to mortgage demand,” he said.

“You can generally see, applications have fallen from October 2025 and over time increasingly from affordability constraint, inflation expectation and rate hikes.”

On Tuesday, the Reserve Bank of Australia held the official cash rate at 4.35 per cent, although it flagged they would lift interest rates further.

While this was the second hold in a row, it followed three interest rate hikes to start the year.

Australia’s housing market has entered a nationwide downturn, with national property values dropping 0.7 per cent in July 2026 which was the sharpest monthly decline since December 2022.

But Mr Comyn said the housing market is coming off an unusually strong FY26.

“I think 2026 exceed our expectations including in investor lending. Clearly we are not going to see that in 2027, but we have seen some stabilisation in it,” Mr Comyn said.

Under CBA’s base case, rates would remain on hold for the rest of 2026 before mortgage holders get some relief in 2027 through cuts.

Mr Comyn expects this to help lift buyers activity in the market.

“We would expect some demand to be going into the market in expectations of rate cuts,” he said.

Commonwealth Bank beats market expectations

Despite the slowing mortgage market, Commonwealth Bank reported $10.98bn in annual profit in its full-year results, surpassing expectations as its loans and deposits portfolio continued to expand.

This beat expectations of a $10.85bn profit.

At the same time, the bank’s net interest margin – which measures how much profit a bank makes by comparing the interest it earns on loans to the interest it pays out on deposits – slipped 3 basis points to 2.05 per cent.

Shareholders will receive $5.05 per share, up 4 per cent, as the bank pays out 77 per cent of its profits to its owners.

CBA reported its cash profit had increased by 7 per cent, with its operating income growing by 6 per cent.

This was driven by the CBA’s home loans, business loans, consumer lending and household and business deposit schemes.

The market predicted CBA’s full-year profits of about $10.85bn, with CBA raising its dividend to $2.70, up from $2.60 last year.

The bank reported its operating expenses had increased by 6 per cent to $13.76m, which it said was driven by “inflation, investment in technology, fraud scams and financial crime, partly offset by productivity initiatives and favourable foreign exchange”.

Despite the pressures on households, home-loan arrears remain relatively low, at just 0.73 per cent, while personal-loan arrears rose to 1.72 per cent.

Realised credit losses remained low and overall credit quality was described as sound, with strong provision coverage.