Additionally, in October 2024, CBA divested another 10% stake in Vietnam International Commercial Joint Stock Bank.

Founded in 1911 and headquartered in Sydney, Australia, CBA is a prominent bank specializing in retail and commercial banking services. It primarily operates in Australia and has a presence in New Zealand through its subsidiary, ASB Bank Limited. As of FY24, the bank serves about 17.6m customers, including 14.3m CBA customers, 1.2m Bankwest customers, and 2.1m ASB customers. CBA has 9.3m digitally active users and 8.2m CommBank app users, demonstrating its commitment to consumer and comprehensive financial support.

The bank's core segments consist of Retail Banking Services, which contribute 49% to the group's net interest income; Business Banking (33%); Institutional Banking and Markets (6%); New Zealand (11%) and the rest is attributed by the corporate segment. As the leading bank in Australia, it operates over 709 branches across the region and employs 48,887 FTE staff as of FY24.

Geographically, Australia emerged as a key contributor with 82.6% of total income, followed by New Zealand at 12.6%, and the rest was contributed by other locations like the United States, Japan, Singapore, Hong Kong, Indonesia, China, and India.

Challenges in NIMs and asset quality

The group’s net interest margin decreased from 2.03% in FY21 to 1.99% in FY24, primarily due to intense competition for home loans and customers shifting to higher-yield term deposits. Additionally, CBA’s asset quality worsened as higher interest rates and cost of living pressures impacted household disposable incomes, leading to an increase in non-performing loans from 0.28% in FY21 to 0.99% in FY24.

Net income declined at a CAGR of 2.6%, falling to AUD9.4bn in FY24. Consequently, profit margins contracted from 42.5% to 35.9% in FY24 due to increase in operating expense.

On a positive note, Net Interest Income experienced a CAGR of 5.7% over the past three years, rising from AUD18.8bn in FY21 to AUD22.8bn in FY24. In addition, CBA saw steady growth in gross loans, which grew at a CAGR of 5.1%, increasing from AUD818bn to AUD950bn in FY24. Deposits also grew at a CAGR of 5.6%, reaching an impressive AUD879bn.

In comparison, National Australia Bank achieved a 3-year CAGR for NII of 6.7%, reaching AUD16.75bn in FY24. Its net interest margins remained stable at 1.71%. However, NAB's asset quality deteriorated, with non-performing loans rising from 0.2% in FY21 to 1.33% in FY24, reflecting the adverse effects of rising borrowing costs and the broader economic slowdown. Meanwhile, deposits at NAB experienced a 3-year CAGR of 7.46%, reaching AUD 680 billion.

Optimistic outlook amid economic challenges

Australia's economic growth is sluggish due to higher rates, which continue to weigh on consumer demand and bring inflation back to the target range of 2-3%. Although inflation is moderating slowly, global geopolitical tensions are adding uncertainty. Since the pandemic, the Consumer Price Index has increased by 19%, making it difficult for households, particularly those aged 25 to 55, to manage borrowings. Housing has accounting for a quarter of the increase, with new dwelling prices up 38% and rents up 15%.

Despite this, the bank remains optimistic about the outlook and believe the Australian economy is fundamentally sound. CBA’s focus remains on supporting customers and generating sustainable returns for shareholders. In its recent quarterly update, the bank reported a 3.5% YoY growth in operating income driven by higher NII and other operating income.

Boosting shareholder value

CBA has boosted its dividends from AUD3.50 to AUD4.65 per share, even in the face of declining net income. This new dividend translates to a yield of 3.65% and a payout ratio of 82.6%. Analysts are estimating an average dividend yield of around 3.0% over the next three years based on current prices.

In addition, the bank executed a substantial share buyback, acquiring over AUD750mn worth of shares in first quarter of 2025 to support the 2H24 Dividend Reinvestment Plan. Through strategic divestments and buybacks, CBA has consistently delivered dividends over the past three years, underscoring its dedication to delivering shareholder value.

Analysts adopt bearish stance

CBA is currently trading at a lofty P/B multiple of 3.56x, which is higher than its five-year average of 2.3x and the global average of 1.46x. At this level, CBA is trading higher than its regional peer, National Australia Bank at 1.92x.

Among the 14 analysts covering the stock, sentiment is predominantly negative: 9 have assigned a “Sell” rating, 3 have rated it as “Underperform,” 1 has given a “Hold” rating, and only 1 has a “Buy” rating. The average target price is AUD101.65, indicating a potential downside of 36.75%.

The slow economic recovery is putting pressure on net interest margins, rising regulatory costs, significant overvaluation compared to peers, and declining consensus estimates, the company is rated as a Sell. Significant market risks—particularly those stemming from interest rate fluctuations and foreign exchange volatility—pose a serious threat to operational performance. Furthermore, economic downturns are likely to severely hinder loan growth, especially considering the diverse geographical footprint of CBA’s operations.