Commonwealth Bank’s first-half fiscal 2026 net profit rose 6% to AUD 5.4 billion. Loan growth of 7% and stable underlying net interest margins, or NIMs, more than offset 6% expense growth. Dividend reliability continues with an interim dividend of AUD 2.35, up 4%. Shares jumped 6% on the result.

Why it matters: The result is largely as expected, and we maintain our medium-term forecasts. Commonwealth Bank is taking share in a competitive market, with 1.1 times system loan growth, without sacrificing margins.

  • Interest income rising 6% reflects strong underlying performance. The bank is writing fewer loans with third-party brokers, which are less profitable, and growth in low-cost deposits contributed.
  • The result supports our positive outlook, summed up by a forecast return on equity of 16% in fiscal 2030 compared with 13.8% this half. We forecast average annual earnings growth of 6% over the next five years, driven by loan growth that’s slightly faster than the market, margin expansion, and cost savings.

The bottom line: We maintain our AUD 100 valuation for wide-moat Commonwealth Bank.

  • Shares are down from June 2025 highs, but remain materially overvalued, on a forward P/E of about 25, dividend yield of 3.1%, and price/book of almost 4 times. In our opinion, shares are detached from the underlying fundamentals.

Between the lines: NIM of 2.04% is down from 2.08% last year, mostly due to changes in the asset base. With deposits growing faster than loans, the bank held more liquid assets, which generate less income than loans.

  • The capital position is strong. Common equity Tier 1 is 12.3%—materially above regulatory requirements—supporting our forecast fiscal 2026 AUD 5.20 fully franked dividend.
  • The interim dividend implies a 74% payout ratio, within the bank’s 70%-80% target range. We expect dividend growth to track earnings, supported by healthy provision levels and surplus capital. Loan impairment expenses remain favorably low.

Commonwealth Bank Well-Placed to Navigate Changes in Economic Conditions

Commonwealth Bank of Australia is the largest of Australia’s four highly profitable, wide-moat-rated major banks. It offers a full suite of banking services in Australia and New Zealand. In the long run, the bank has consistently increased shareholder wealth in favorable economic times. The loan book’s large weighting to home loans and the high proportion of customer deposits reduces risk on bad debts and sudden changes to funding costs.

While Australian housing is expensive and debt/household income ratios are high, we remain comfortable for several reasons. Tight underwriting standards, lender’s mortgage insurance, low average loan/valuation ratios, a high incidence of loan prepayment, full recourse lending, and a high proportion of variable rate home loans combine to mitigate potential losses from mortgage lending.

With cash rate increases to combat high inflation, the risk of higher credit losses has increased. It could also reduce demand for credit. We expect modest credit growth and margin improvement over the medium term. Operating expenses will continue to rise due to inflationary pressure and the bank investing to capture growth opportunities, this despite productivity improvements being realized.

Bad and doubtful debts expense peaked in first-half fiscal 2009. Elevated loan losses in fiscal 2020 were entirely due to loan loss provisions. With large provision balances, and economic conditions improving, loan losses are expected to be moderate in the short term.

A string of divestments plus strong organic capital generation see the bank retain a strong capital position even after completing share buybacks.

Bulls Say

  • Commonwealth Bank of Australia’s well-managed net interest margins, sound asset quality, and strong balance sheet continue to consistently deliver solid financial results.
  • Costs have been increasing due to inflation and investments in technology, but in the longer term, we expect tighter control to support earnings.
  • Strong organic capital generation leave the bank well placed to make market share gains while still paying attractive dividends to shareholders.

Bears Say

  • Increased regulatory, political and public scrutiny could erode the bank’s pricing power and over time, its wide economic moat.
  • Commonwealth Bank is a major beneficiary of transaction account funding, and competitors paying much higher rates could encourage more customer switching and increase the average cost of funds.
  • Slow GDP growth and highly indebted households could see credit growth slow further.

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Terms used in this article

Star Rating: Our one- to five-star ratings are guideposts to a broad audience and individuals must consider their own specific investment goals, risk tolerance, and several other factors. A five-star rating means our analysts think the current market price likely represents an excessively pessimistic outlook and that beyond fair risk-adjusted returns are likely over a long timeframe. A one-star rating means our analysts think the market is pricing in an excessively optimistic outlook, limiting upside potential and leaving the investor exposed to capital loss.

Fair Value: Morningstar’s Fair Value estimate results from a detailed projection of a company’s future cash flows, resulting from our analysts’ independent primary research. Price To Fair Value measures the current market price against estimated Fair Value. If a company’s stock trades at $100 and our analysts believe it is worth $200, the price to fair value ratio would be 0.5. A Price to Fair Value over 1 suggests the share is overvalued.

Moat Rating: An economic moat is a structural feature that allows a firm to sustain excess profits over a long period. Companies with a narrow moat are those we believe are more likely than not to sustain excess returns for at least a decade. For wide-moat companies, we have high confidence that excess returns will persist for 10 years and are likely to persist at least 20 years. To learn about finding different sources of moat, read this article by Mark LaMonica.