Investment Loans Surge 3.5% as Australia's Largest Bank Posts Record $10.25 Billion Profit
Commonwealth Bank of Australia reported a record annual profit of $10.25 billion Tuesday, driven by robust lending growth and improved interest margins, even as investment property loans surged 3.5 percent in the June quarter.
The country's largest lender delivered the bumper full-year result for fiscal 2025 while adding $40 billion in new loans to homeowners and businesses, bringing total lending to $761 billion. The bank's interest margin increased by nine basis points to 2.08 percent, reflecting the difference between income from loans and payments to savings customers.
"This year we have continued to execute our strategic priorities, maintain strong operational performance and deliver consistently for our customers and shareholders," Commonwealth Bank chief executive Matt Comyn said in announcing the results.
The record profit came as Australian Bureau of Statistics data released Tuesday showed investment loan commitments rose 3.5 percent in the June quarter to 49,065 new approvals, marking the first quarterly increase after two consecutive falls. Owner-occupier loans grew more modestly at 0.9 percent.
Dr Mish Tan, ABS head of finance statistics, said the June quarter's overall rise in home loans followed a fall in the March quarter. "Through the year growth was more subdued at around 0.2 percent. That said, lending activity is still at relatively high levels," Tan said.
Share Price Falls Despite Record Results
Despite the record profit announcement, Commonwealth Bank shares fell more than 8.5 percent in the first hour of trading, helping drag the overall ASX200 down from the record high reached following Monday's interest rate cut from the Reserve Bank.
The bank announced a final dividend of $2.60 per share, taking the full-year dividend to $4.85 and delivering $8 billion to more than 8 million Australian shareholders. The dividend represents a 4 percent increase from the previous year.
"We have declared a final dividend of $2.60 per share, fully franked, taking our dividend for the full year to $4.85," Comyn said. The full-year dividend payout ratio reached 79 percent of cash net profit after tax, near the upper end of the bank's target range.
Investment Lending Drives Growth
The surge in investment lending highlighted continued investor interest in property markets despite higher interest rates through most of the period. Investment loans reached a total value of $32.9 billion in the June quarter, rising 1.4 percent or $443 million from the previous quarter.
"The 3.5 percent quarterly growth in the number of investment loans follows two consecutive quarterly falls. While annual growth slowed to 0.8 percent from 27.0 percent in the June quarter 2024, the number of new loans remained historically high," Tan said.
The Northern Territory recorded the largest percentage increase in investment loans, rising 21.1 percent or 96 loans, while Western Australia saw a 1.4 percent increase with 85 additional loans.
Owner-Occupier Market Shows Steady Growth
Owner-occupier lending remained steady with 80,929 new loans approved in the June quarter, representing a 0.9 percent increase of 758 loans compared to the previous quarter. The total value reached $54.7 billion, rising 2.4 percent or $1.3 billion.
Average loan sizes for owner-occupiers increased significantly, rising $17,804 to $678,011, reflecting higher property prices across major markets.
"While the number of new owner occupier loans in the June quarter was slightly lower than this time last year, the value of loans rose by 7.4 percent. The average loan size has grown by 7.5 percent since the June quarter 2024," Tan said.
The growth was driven primarily by Queensland with 255 additional loans, South Australia with 137 loans, Tasmania with 59 loans and the Northern Territory with 57 loans.
First Home Buyers Remain Active
First home buyer activity continued to grow, with owner-occupier first home buyer loans increasing 1.7 percent or 492 loans to 28,861 in the June quarter. Queensland led the growth with 226 additional loans, followed by New South Wales with 187 loans and Victoria with 88 loans.
The activity reflected ongoing government incentives and improving affordability conditions in some markets, despite elevated property prices in major cities.
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Technology Investment Announced
Commonwealth Bank also announced a new partnership with ChatGPT parent company OpenAI to improve scam and fraud protection for customers. The deal with the artificial intelligence company aims to deliver more personalized services to bank customers.
"With persistently high levels of fraud, scams, cyber threats and financial crime it is critical that we become a simpler, safer and better bank. As a result, we have accelerated our technology modernisation agenda," Comyn said.
Interest Rate Environment Impact
The results came one day after the Reserve Bank of Australia cut the cash rate by 25 basis points to 3.5 percent, the second reduction this year following cuts in February and May.
"While there were rate cuts in February and May, we will not see the full impact of these on new home lending activity until later in the year," Tan said of the broader lending market trends.
Commonwealth Bank's net interest margin improvement reflected higher earnings on capital and replicating portfolio hedges, partly offset by increased competition on deposit pricing.
Strong Capital Position Maintained
The bank maintained a strong capital position with a Common Equity Tier 1 ratio of 12.3 percent under APRA Level 2 rules, well above the minimum regulatory requirement of 10.25 percent. Deposit funding remained stable at 78 percent of total funding.
As of June 30, the bank had completed $300 million of an announced $1 billion on-market share buyback program. The buyback period has been extended by an additional 12 months to allow for flexibility in execution.
Economic Outlook Remains Cautious
Despite the strong results, bank executives remained cautious about the economic outlook amid global uncertainty and geopolitical tensions.
"Despite global uncertainty, the Australian economy has remained resilient, with strong fundamentals including a healthy labour market, steady immigration and ongoing public sector investment," Comyn said. "Even though sentiment remains subdued, we expect economic growth to improve modestly as the year progresses."
The bank now carries approximately $2.6 billion in buffers relative to losses expected under its central economic scenario, providing protection against potential economic downturns.
Refinancing Activity Increases
Refinancing between lenders also showed growth, with the total number of loans refinanced rising by 175 or 0.3 percent to 65,205 in the June quarter. This represented a 24.1 percent increase compared to the same period last year, reflecting continued customer activity in seeking better rates.
Commonwealth Bank's results highlighted the resilience of Australia's largest banking sector amid challenging economic conditions, though questions remain about sustainability of growth rates as interest rate cuts flow through the economy in coming quarters.
The record profit underscored the bank's dominant market position, serving as the main financial institution for one in three Australian consumers and one in four Australian businesses, positioning it to benefit from any broader economic recovery in the months ahead.
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