Hello and welcome to the results briefing for the Commonwealth Bank of Australia for the Half-Year ended 31 December 2025. I'm Melanie Kirk and I'm Head of Investor Relations. Thank you for joining us. For this briefing we will have presentations from our CEO Matt Comyn with an overview of the results and an update on the business. Our CFO Alan Docherty will provide details of the results and Matt will then provide an outlook and summary. The presentations will be followed by the opportunity for analysts and investors to ask questions. I'll now hand over to Matt. Thank you, Matt.
Thanks very much, Mel, and good morning, everyone. It's great to be with you today to present the bank's half-year results. We recognize the cost of living pressures, global uncertainty, and rapid change are weighing on many Australians. In this environment we've remained focused on supporting and serving our customers. That focus has delivered disciplined growth across our core customer segments: cash net profit increased by 6% on the prior comparative period, and earnings per share increased by AUD 0.19. We maintained strong liquidity, funding, and capital positions, and our operating performance and capital position has allowed the board to declare a fully franked dividend of AUD 2.35, up AUD 0.10 on the prior corresponding period. This marks the 11th consecutive period of DRP neutralisation. There are two features of this result that stand out. The first is the market context.
We've seen high credit growth, low loan losses, supportive funding markets, and intense competition. The second, which is a key strength, has been maintaining stable margins while growing volume at or above system across all major segments. Over the past 12 months mortgage balances grew by AUD 45 billion, or 7%, and business lending grew by 1. 3x system. Deposit balances increased by AUD 44 billion in the half-year growth. Domestic deposit and lending balance growth in a half-year since 2008. Australia is currently experiencing relatively strong nominal growth and private sector demand. In this environment banks play a critical role in supporting credit growth for productive investment while maintaining unquestionably strong capital positions. Doing this sustainably requires profitable banks that can generate capital organically to support the economy.
The last time credit growth was at this level, apart from a brief period during COVID, returns across the industry were materially higher. In normal conditions such an environment would favor disciplined competition so that scarce capital is deployed where it earns an appropriate return. However, the competitive landscape is materially shifting due to differing business models, regulatory settings and architecture, customer offerings, and return hurdles. Against this backdrop we believe CBA is uniquely positioned to adapt and perform strongly. Our deep customer relationships and franchise strength allows us to compete effectively and profitably. That profitability allows us to support higher growth across the economy, invest to improve the customer experience, and deliver consistent returns for our shareholders. Disciplined growth and margin management drove operating income growth of 6.6%, operating expenses increased by 5.5%, excluding restructuring and notable items.
This reflected inflationary pressures and higher investment in technology, resilience, and our front-line teams to improve customer experience. Credit conditions remained very benign, contributing 6.1% cash profit growth. The performance and long-term health of our franchise is underpinned by a simple relationship-led model. Deep, trusted customer relationships drive more frequent and meaningful engagement. That engagement provides deeper insights into customer needs, enabling us to deliver superior customer experiences. Over time this creates enduring value for customers and sustainable returns for our shareholders. This model has long underpinned our leadership in retail banking and, over the past several years, has accelerated growth in our business bank. Technology continues to amplify this advantage, enabling more personalized, timely, and scalable customer engagement. Our financial performance reflects customer focus, disciplined execution, and investment in our franchise.
We track the strength of our customer relationships through Net Promoter Score, and this remains an important indicator of trust and advocacy. We currently hold leading NPS positions among major banks in consumer and institutional banking. Following 15 months at number one, we dropped to the second position in business banking in the half. Operationally this is translating into scale and momentum across the group. On average each week we settle more than 3,000 home loan purchases, lend around AUD 900 million to businesses, and process almost 150 million payments, and alert customers around 280,000 times to suspicious card activity. We continue to build scale and depth of primary customer relationships which underpins long-term franchise health. We have consciously increased investment in data, technology, and AI to improve customer experience, safety, security, and operational resilience. The retail bank has performed well with pre-provision profit growth of 5%.
We have maintained the leading Net Promoter Score for 38 consecutive months. Retail MFI share has increased slightly to 33.5% but remains below its 35% peak. Customer engagement remains a core strength with 9.4 million CommBank app users and 14 million daily logins. We now hold 12 million retail transaction accounts, a 35% increase since the start of COVID, and an increase of 585,000 in the past year. As a result our deposit growth has been strong. Home loan balances increased by 7% in the past year to AUD 622 billion. 97% of these customers hold a transaction account with us. Digitization and technology continue to drive performance in home lending. 70% of proprietary home loan applications are auto-decisioned on the same day. We are focused on continuing to strengthen our MFI share and investing in AI-enabled digital experiences.
The business bank has had another period of strong performance. Pre-provision profit growth was 8% and cash profit growth was 14%. MFI share increased to 26.9, which is a 310 basis point increase since the start of COVID. We added 85,000 transaction accounts in the past year, which is a 7% increase. The business bank is now the Commonwealth Bank's largest source of transactional deposits. We grew lending at 1.3x system, increasing balances by AUD 18 billion in the year. Business banking lending balances have increased by 87%, or AUD 78 billion, in the past six years, supporting growth and jobs in our economy. Approximately 90% of business loans are linked to a CBA transaction account reflecting the depth of our primary relationships. This supports credit quality with loan losses of six basis points in the half.
It also allows us to use data and automation to substantially improve lending and servicing processes. For small businesses we have doubled the volume of loans auto-approved through BizExpress over the past two years and have reduced annual loan maintenance activity by 85%. We also launched a national AI, cybersecurity, and digital capability initiative supporting up to 1 million small businesses to lift productivity and competitiveness. The combination of deep customer relationships and prudent lending growth is delivering sustained earnings performance. Our institutional business is also performing well, with pre-provision profit increasing by 13%. We have regained the number one position in NPS, supported by improvements in client experience and execution. Our institutional bank plays an important role in providing AUD 64 billion in net deposit balances and supporting markets activity.
We have seen growth in new transaction banking mandates, enabling the institutional bank to further support the group in deposit funding. The markets business has had a particularly strong half. We led the market in debt capital market performance and last year topped the Bloomberg Combined League Table. In New Zealand ASB performed well with operating income growth of 8%. ASB is the highest reputation score of the major banks in New Zealand and has been a Digital Bank of the Year for the past four years. ASB saw 1.3x system growth in home lending and business and rural lending. Deposits grew at 1.2x system. Customer deposits and home lending balances have both increased by 41% in the last six years, by AUD 26 billion and AUD 24 billion, respectively. The credit environment remains benign. Troublesome and non-performing exposures decreased following upgrades or external refinancing activity.
The number of home loan customers in hardship declined by 28% since June 2024. We remain well-provisioned for a range of economic scenarios. We hold total provisions of AUD 6.3 billion, which is AUD 2.8 billion above our central economic scenario. Our balance sheet remains strong with 79% deposit funding. Our weighted average maturity of long-term funding is 5.2 years and liquid assets are AUD 199 billion. Our capital ratio of 12.3% is AUD 10 billion above minimum regulatory requirements. A strong balance sheet allows us to invest for the long term and respond to any deterioration in market conditions. We have seen record inflows of deposits in the half. We have also seen a AUD 15 billion increase in redraw balances and offset accounts. Customers having surplus funds available is a significant predictor of arrears performance, and so this behaviour has a positive capital impact.
87% of home loan customers are now in advance of their scheduled repayments, on average 35 payments in advance. When adjusted for redraw and offset savings, household debt has now returned to levels not seen since 2015. The transmission of monetary policy in Australia means that our banks pay very competitive interest rates on at-call household deposits compared with other markets. On average, at-call deposits in Australia attract an interest rate which is 5x higher than in the U.S . and 10x higher than in Europe. We have seen a strengthening in the economy in the past six months driven by consumer demand. Spend has been increasing across all customer age cohorts. Most age groups are broadly maintaining discretionary spending and increasing savings levels. GDP growth in mid-2026 was 2%, more than double the same period a year ago.
Most noticeably economic growth has shifted from being primarily driven by public demand to being driven by household consumption. Last week we saw the Reserve Bank raise interest rates to 3.85% in response to inflation which is running higher than the target band. Almost one-third of the increase in the CPI basket is driven by housing, with utilities a substantial contributor to that category. Our purpose, building a brighter future for all, guides how we allocate capital, manage risk, and invest for the long term. It reflects our long-term commitment to Australia, our customers, and our communities.
Some of the ways we are delivering on our purpose include significantly increasing funding for new residential housing development, delivering AUD 190 million in benefits to consumers through CommBank Yello, migrating our core banking system to the cloud to improve resilience, delivering 30% more technology changes, reducing critical incidents, and improving recovery times by 65%, rolling out new AI tools and training programs to our teams to build capability and deliver better customer experiences, and maintaining our strong balance sheet settings, sending around 40,000 alerts a day to customers about suspicious activities, and deploying more than 2,900 AI bots to engage and disrupt scammers. Importantly, our strong performance enables us to continue supporting our 18 million customers, protect communities, support Australia's economy, and invest for the long term.
As cost of living pressures persist we are providing targeted support to households under strain, including 63,000 tailored payment arrangements for customers most in need. We have supported more than 79,000 households to buy a home, including through dedicated support for first home buyers. We lent AUD 25 billion to businesses, supporting growth, jobs, and economic activity. We are investing AUD 1 billion a year to help more people protect themselves from scams and fraud. Our strong balance sheet allows us to support customers and communities while delivering sustainable long-term returns for shareholders, including AUD 4.4 billion in dividends this half, benefiting more than 14 million Australians. We will continue to support our customers, protect communities, and invest for the long term to provide strength and stability to the Australian economy. I will now hand to Alan to take you through the result in more detail.
Thank you, Matt, and good morning, everyone. Starting with the results overview, we have set out the key aspects of our current operating context, how we are responding, and how those actions are contributing to the long-term strengthening of our franchise. At a macro level we are seeing strong system growth in both credit and money supply, competitive intensity within the banking sector remains elevated, technological innovations continue at pace, and geopolitics remains a source of potential tail risks. Against that backdrop our response has been deliberate and disciplined. We have carefully managed volume and margin trade-offs, continued to invest and extend our leadership in both technology and proprietary distribution, and maintained conservative balance sheet settings. This approach is yielding strong financial outcomes. Pre-provision profit growth is healthy. Our dividend per share continues to reflect the strong compositional quality of our earnings.
Our balance sheet settings give us confidence in our ability to continue supporting customers, growing the franchise, and delivering sustainable returns to shareholders over the long term. This slide sets out the usual reconciliation between statutory and cash profits for the half. There were only modest movements in the usual non-cash items during the period. As such both statutory and cash profits on a continuing operations basis totaled around AUD 5.4 billion. Breaking down the components of that cash profit, operating income grew 6.6% year-on-year as our investments in technology and proprietary distribution continue to yield strong operational outcomes. That top-line performance allows us to continue to invest in the franchise, with underlying operating expenses increasing 5.5% on the prior comparative period.
Notable expense items totaled AUD 170 million over the last six months, largely due to the settlement of a long-standing legal proceeding in New Zealand during the September quarter. Loan im pairment expense was flat year-on-year and lower versus the second half, reflecting the benefits of our conservative settings and the resilience we continue to see in customer and portfolio credit quality. This resulted in growth in cash profits of a little over 6% on both the prior corresponding period and the second half of last year. It is worth noting that the effective tax rate for the half was 30.3%. Looking ahead you can assume that will settle closer to 30% for the 2026 financial year. On operating income we delivered growth of 6.6% over the prior comparative period.
Net interest income increased strongly, up AUD 761 million, supported by profitable above-system growth in lending and deposits. Other operating income also contributed, growing AUD 163 million over that period, assisted by one-off gains. This slide sets out some of the drivers of long-term franchise strength that we have been targeting: deeper customer relationships, deposit-led growth in our core segments that underpins and precedes lending growth, and productivity improvements within our front-line teams. Our retail bank continues to build foundational banking relationships, adding 3 million net new transaction account customers over the past five years. In home lending we continue to prioritize and grow proprietary distribution, with AUD 55 billion of new fundings originated over the last six months through our own channels. Our strategic focus on business banking continues to deliver strong outcomes, with double-digit compound annual growth in both deposits and lending over recent years.
Our investments in building a more digital, customer-focused and streamlined business bank for our people and our customers can be seen in the productivity improvements delivered over the last five years, with fundings per banker up 65% over that period. Turning to the net interest margin and looking at the movement over the most recent six month period, the main driver of the 4 basis point reduction over the half was the increased mix of low-margin liquid assets and institutional repos. Excluding those items margins were 1 basis point lower, with competitive pressures and the impact of a lower cash rate largely offset by the replicating portfolio and the favorable portfolio mix effect of strong deposit growth. Margins were a little stronger in the December quarter, largely due to the benefit of higher swap rates on our replicating portfolio.
You can see here that we are managing margin outcomes carefully, balancing competitiveness with returns and staying focused on building lasting primary relationships with our customers rather than chasing unprofitable volume growth. On operating expenses they increased 5.5% on the prior corresponding period. The drivers are largely unchanged over recent years. We are seeing inflationary impacts on wages and IT vendor cost inflation continues to run higher than CPI. At the same time we continue to invest behind the franchise with higher cloud consumption and software licensing costs and our ongoing investment in technology infrastructure and AI capabilities alongside enhanced front-line capacity and operational resilience. We are self-funding much of that investment through productivity initiatives, realizing approximately AUD 222 million in incremental cost savings over the past six months.
Turning to credit risk, loan impairment expense for the half was AUD 319 million, broadly consistent with the prior comparative period and improving versus the second half. Across the portfolio we continue to see broadly stable to improving conditions. Households have been supported by the strength of the labor market and rising disposable incomes. We have seen this reflected in higher prepayments and lower consumer arrears. In the corporate portfolio troubled assets and non-performing exposures continue to trend lower as a proportion of the portfolio. Given the uncertainty in global macro and geopolitics we have maintained strong provisioning coverage. Total recognized provisions are approximately AUD 6.3 billion and importantly we continue to hold a material buffer above the central scenario. This slide provides the usual additional detail on sectoral considerations. We marginally reduced base provisioning and forward-looking adjustments in areas where conditions have improved, including consumer, construction, and retail trade.
This was partly offset by an increased level of provisioning relating to our downside economic scenarios, where we take into account the risk of exogenous shocks to the domestic economy. Overall our approach to provisioning remains grounded, forward-looking, and appropriately conservative. Our funding and liquidity profile has continued to strengthen. We continue to be predominantly deposit-funded, supported by a strong deposit-gathering franchise. Total customer deposits grew an annualized rate of 10% over the last six months, taking our customer deposit ratio to 79%. We also maintained a historically low proportion of short-term wholesale funding. This combination of deposit growth, consistent term issuance across diverse funding markets, and strong liquidity buffers means we remain well-positioned to support the current strong level of customer demand for lending growth.
On capital our Common Equity Tier 1 ratio remained at 12.3%, with organic capital generation continuing to support franchise growth and dividends. Growth in risk-weighted assets was largely a function of lending volume growth, with credit risk weightings remaining broadly stable over the past six months. The interim dividend increased AUD 0.10 to AUD 2.35, representing a headline payout ratio of 72% and a normalized payout of 74% after adjusting for the benign first-half loan loss rate. The dividend will be fully franked and the dividend reinvestment plan will be offered with no discount and fully neutralized. Delivering franchise growth while maintaining returns above our shareholders' cost of capital allows sustainable and consistent accretion in dividend per share over the long term. This slide sets out our long-term approach to capital management.
We prioritize profitable franchise growth as the first and best use of organic capital generation. We invest in line with our strategic priorities, aim to pay sustainable dividends, and we carefully manage our share count and surplus capital in a disciplined way. Over time you can see we have balanced capital generation with capital distribution, supporting franchise growth when lending demand is elevated, while also returning excess capital to shareholders primarily through dividends as well as through the selective utilization of buybacks. Ultimately we remain focused on optimizing long-term shareholder outcomes while maintaining the balance sheet resilience that underpins our ability to support our customers and the broader economy through the cycle. In closing this long-term approach has again assisted in delivering consistent and superior shareholder returns. Our combination of a high return on equity and strong payout ratio continues to compare favorably with domestic and global banking peers.
Our strategic investments are yielding measurable improvements in franchise growth and productivity, underpinning our continued outperformance in net tangible assets and dividends per share. I will now hand back to Matt for the economic outlook and closing remarks. Thank you.
Thanks very much, Alan. Australian economic growth has strengthened more quickly and proven more resilient than expected. This was driven by increases in consumer demand and rising investment in AI and energy infrastructure. Household consumption has risen, including across discretionary categories. Supply-side constraints mean that the economy is struggling to meet this increased demand. As a result inflation is now expected to remain above the Reserve Bank's target band for some time, placing further upwards pressure on interest rates. Australia has remained highly resilient despite a volatile global environment. To date there has been limited economic impact from trade and tariff disruptions. A global AI investment cycle is supporting growth.
Elevated geopolitical risks are likely to generate ongoing shocks, reinforcing the importance of economic and operational resilience. We will continue supporting our customers with their financial resilience during this period. We are optimistic about the prospects of the economy and will play our part in building a brighter future for all. In summary the market has seen a period of high growth, low loan losses, and intense competition. The Commonwealth Bank is well-placed to adapt and perform against this backdrop. We remain committed to supporting and protecting our customers, reimagining customer experiences by investing in technology and AI, and providing strength and stability for the Australian economy, and delivering sustainable returns. We will stay focused on consistent, disciplined execution and investment for the long term to deliver for our customers and build a brighter future for all. I will now hand to Mel to go through your questions.
Thank you, Matt. For this briefing we will take questions from analysts and investors. When the line opens for you please introduce the organization that you represent and limit your questions to one to two maximum questions. The briefing will then have the—excuse me, sorry—we will then take the first question from Andrew Triggs. Thank you.
Thank you, Mel, and good morning. Matt, you made in your prepared remarks for the first quarter trading update you talked about the competitive concerns, sorry, the competition concerns you had and potential responses and offsetting. Could you sort of elaborate on those? You have seemed to have sort of reiterated some of those comments this morning. Specifically what sides of the balance sheet are you referring to there?
It does seem at odds with a stable underlying margin in the half and the slight improvement in NIM that you have seen in the December quarter.
Yeah, no, thanks and good morning. Look, I guess I would contrast between, as I said in the opening remarks, I think the strength of this result has been our ability to maintain a very good and disciplined volume growth and a part of that is underlying stability and the margin performance across all of our customer-facing segments. You know, I think when we look at, let's say, last calendar year I think the market is and the competitive context is shifting. Now, I think clearly this demonstrates our ability to be able to perform well in that.
But, I mean, if you look at the period of, you know, the last five years we have seen the most rapid growth by one competitor in household deposit share growth. In fact, I think it would be close to double the previous growth rate. I think we have seen a pretty sharp reduction in household balances. I think the greatest over that five-year period outside the major banks, I think even if you went back to sort of 2008. And I think that's interesting in the context of the backdrop. We have got, as we talked about, higher system credit growth. We have seen that clearly in retail and also in non-retail. We expect that there is going to be a maintenance of higher credit growth on the back of, you know, higher nominal growth and, of course, I hope, a pickup in investment.
If you look at the organic capital generation across peers and really the sort of volume and NII returns that are being generated I think that sort of marks, you know, quite a shift. Against that sort of credit environment you would actually expect there to be much greater pricing discipline. And, look, clearly there are different choices that are being made around business model and customer proposition. You know, some part of that is being informed by the regulatory architecture and choices. I mean, it's for us to understand and adapt to the environment to be able to execute as well as we can, both in the 6 or the 12-month period but also, most importantly, to position the organization for the future.
We think a lot about how do we build on the scale, durability, resilience, investment in the franchise while continuing to perform well in any given period and deliver sustainable, reliable returns to our shareholders.
Thanks, Matt. And maybe perhaps for Alan, just to pick apart maybe a little bit more the slight improvement you referred to in NIM in the second quarter. You put that down to the replicating portfolio but that tends to come through more slowly. What were the other drivers and given we have had a rate hike in February, potentially another one in May, what does it mean for the outlook for the NIM into the second half?
Yep, thank you, Andrew. Yeah, between Q1 and Q2 I guess there was a couple of things that changed. I mean, importantly, the replicating is a major factor.
The five-year swap rate, I think, increased 30 basis points between Q1 and Q2. As the trackers going through over that period we have seen the pickup there. Also, there was a bit more of a cash rate headwind in Q1. So if you look at the weighted average overnight cash rate, yeah, that was down, I think, 40 basis points Q1 to the second half of last year, only down 12 basis points over the second quarter relative to the first. So you had that cash rate headwind in Q1, so it would be much more neutral, I guess, in Q2. The other aspect was very strong growth as we have reported in particularly business transaction accounts in that December quarter. So that was pleasing. So we picked up a bit of a mixed benefit on BTA growth through Q2.
Now, an element of that seasonality, we get seasonally stronger growth in the December quarter. But, you know, you can see what, you know, the changes we have seen in swap rates so that will continue to feed through in our factors in the period ahead.
Great. Thank you.
Thank you.
Thank you. The next question comes from Jon Mott.
Thank you, Jon Mott here from Barrenjoey . I have got a question on slide 96 and it's a long way in but if we can just click over there. Just looking at the deposit side and well done, just really shows the strength of the franchise with the great growth of the deposits coming through. But I wanted to drill down into it.
So if you look at the growth in retail transaction accounts, pretty steady, you know, good numbers, growing 3% in the half, 5% year-on-year, it has been growing pretty steadily. But then when we look over at the retail deposit mix, a big jump and I think this is the biggest jump you have ever had in transaction deposits in the retail bank and if you go on the average balance sheet you can also see they are coming in non-interest bearing deposits, so excluding offset accounts. You have seen huge growth and given the comments from the first quarter it didn't appear to be there. So it really looks like it has come through in the December quarter. To put it into perspective, I just back-solved that the average transaction account in Australia jumped by AUD 700 from just over AUD 10,000- AUD 10,700.
So what happened in that December quarter to see such massive growth, not in the number of transaction accounts but in the balance? And when you think about how it is going to go going forward, is this just, you know, seasonal and then get drained into savings or higher interest rate accounts over this next half? Or are you going to see really strong growth in non-interest bearing deposits really support the NIM through the second half of 2026 and into 2027? So can you just explain what happened?
Yeah, I mean, one element of that transaction account growth is growth in the offset accounts. We have seen very strong, consistent growth in offset through both Q1 and Q2.
I mean, that is, you know, I think a healthy sign of continued growth in excess savings across the economy and we called out in one of the macro slides the improvement that you can see in the savings rate that we have continued to see through the course of that half. Yeah, and in terms of the performance of the underlying ex-offset growth in the retail bank that has continued to improve. I mean, we have seen relatively consistent growth in average balances per retail customer account so that has continued to grow in the period. And, of course, we have continued to attract more customers. And so very strong growth and other, you know, I think year-on-year 600,000 growth in customer transaction accounts in the retail bank. Retail customer numbers are up 3 million over the five-year period.
So, again, that has been relatively steady. But I think it is a function of just that, you know, that continued growth in savings across the broader economy and we have seen a large share of that come through the retail bank.
Okay, just digging into that a bit more and just going over to the retail bank in the actual result. And if you look at the non-interest-bearing transaction accounts in the you can see there, this obviously excludes offset accounts. Big jump again there by, you know, AUD 4 billion. So is there anything in particular that happened in that fourth quarter that just drove this so much higher? Because this isn't you are seeing steady customer account growth. Yeah, I mean. It is unusual. And then, obviously, this implies what happens into the next half.
Yep. No, I mean, it is very pleasing.
I think a more like-for-like comparison is going to be December to December growth in non-interest bearing transaction in the retail bank. We do get a fair amount of seasonality into that June period. So going into June, as you come out of the March quarter into June, you tend to have a higher level of spot non-retail transaction account deposits which then dip quite significantly into the June 30 period. We see a lot of switching, particularly small business owners injecting cash in other businesses as they get to the June 30 financial year-end. So we have been pleased with the growth, probably the better underlying measure of that growth, I think, is the year-on-year 6% growth between the AUD 47.5 billion we had this time last year and the AUD 50 billion that we landed at December 31.
So, yeah, strong growth but I wouldn't annualize the six-month growth. Yeah, I think there is a bit of seasonality for sure in it, John. I think Alan has touched on it all. I mean, obviously, we would like to think with all the work that we are doing around the engagement and main bank proposition that is attracting, you know, higher balances. We did see, obviously, a run-up in incomes across the economy. But I think it is hard to then just extrapolate. I mean, the fourth quarter was strong for us in a number of areas including both in business and retail deposit growth at an account and average balance number.
Thank you.
Thank you. The next question comes from Richard.
Good morning, Matt. I have got a couple of questions. The first relates to the mortgage market and the second relates to benefits of scale.
So on the mortgage market, your major bank competitors have been pretty clear in communicating their desire to invest in and grow their proprietary distribution. So that leads me to ask whether your expectation that you can grow at or above the system in the mortgage market is premised on a belief that you won't lose any share of proprietary distribution or that third-party broker share of the industry's mortgage origination will fall from its current levels.
Yeah, look, Richard, I mean, we don't, as you know, sort of at any period seek to grow sort of at or around the system. We are going to make lots of different choices. I think there are a couple of different sides to it. Clearly, the proprietary distribution has been a strength for some time and the team have executed really well.
I think we are now, we think, 54% of proprietary mortgage origination. On one side, the other banks joining and having a greater focus on that, maybe that helps a little bit to change the perception or, you know, customer preference more broadly in the market. I mean, secondly, the broker channel is a really important distribution for us and I am, you know, and it will be going into the future. So, I mean, it is predicated really on the continuation of what we have been doing. And I think we will be able to maintain between both our CommBank Yello brand, Bankwest, which is obviously heavily concentrated in broker, and our digital proposition, you know, a balanced portfolio in terms of distribution.
And then, of course, while serving our customers we have sought to, you know, optimise for cohorts and individual segments where there are, you know, structurally higher margins like there are in Investor.
Okay. Thank you. And my second question really relates to some of the slides and your comments pointing to, you know, very strong growth in the franchise since 2019, whether it be, you know, deposit balances or number of customers or number of accounts, you called that out in your opening remarks. That should suggest that you will get increasing benefits from scale. But if we look at the cost-to-income ratio, you know, in rough terms, it is somewhere in the mid-40s. That is where it is today. That is where it was back in 2019.
Do you think it is fair to view the cost-to-income ratio as, you know, a measure of whether you are delivering benefits from scale? And, you know, can investors expect or cost-to-income ratio at CommBank over the coming years?
Yeah, look, I mean, it is a and look, I am certainly a believer in increasing returns to scale and how they might compound over a long period of time. I think the drivers, particularly on the cost side for us, I guess, as we reflect over the last, whatever, five or eight years, have been, you know, deliberately targeted in a couple of areas. You know, first and foremost, we have significantly increased the investment and we think that is really important to both underpin. I think that is one of the major sources of scale and we have substantially increased sort of regulatory risk management.
You know, of course, without giving any sort of clear guidance, you might recall early on in our collective tenure we gave some cost-to-income ratio guidance and then the cash rate promptly fell several times after that. So we are not likely to repeat with. I think that was early 2019, wasn't it, Matt? It was. It was, Richard. We remember it well, I am sure you do. So, look, I think we definitely have aspirations to, you know, perhaps over the medium term definitely shift the trajectory of that cost. But we also, I guess, in any period we are prepared to sacrifice near-term returns for if we believe that we can deliver the best long-term outcome. And I, you know, I do think the next, you know, five years will be quite different in terms of where the investments will come from.
I do think there is a lot of consistency around technology. Probably the other area that I think occurs to Alan and I in this result is in terms of where the increased investment over and above the areas that we are used to calling out is there is just a lot more going into resilience more broadly. And, I mean, cyber has been a theme. So we do think the importance of being able to continue to invest in differentiated experiences but also just, you know, core resilience and protection of our customers. You need to be able to generate a strong organic return profile to be able to fund that investment, to be able to simultaneously provide lending to the economy and distribute dividends. So it is probably a long-winded way of saying no change to guidance, believe in returns to scale stro ngly.
I think there will be opportunities for us to improve our cost trajectory and ratios over time.
Thank you.
Thank you. The next question comes from Andrew Lyons.
Thanks and good morning, Andrew Lyons from Jefferies. Alan, just a question on costs firstly. The first quarter you spoke to seasonally low IT vendor costs but the first half cost performance was a particularly good one and it wasn't particularly apparent that that came through in the second quarter. How should we sort of think about that seasonality comment from the first quarter? Should we be seeing a bit of a step up in those costs being expensed through the P&L in the second half just as you continue to invest in the business?
Yeah, you will notice in the detail of the investment spend disclosures we have dropped the capitalization rate in the current period. We are capitalizing less.
More of that is flowing through into the P&L. You know, that goes with the change, slight change in mix that we have seen from a strategic investment perspective. So more weighting towards productivity and growth initiatives, a little bit less proportionately on some of the infrastructure spending. The infrastructure spending by nature is more capitalization-heavy than other forms of spend. There is a little bit of seasonality in Q1. We have seen some of that reverse in Q2. It is fair to say that, you know, we have called out IT vendor cost inflation pretty consistently over the past, you know, 12, 18 months. It is an area that we continue to be very cognizant of, very focused on. You know, we see that as a, you know, over the medium- to long-term potential source of above CPI, above domestic inflation, source of cost growth.
It is something that we are managing carefully but something that we keep an eye on and that is why we made the comment in the first quarter because you didn't really see it as a source of cost inflation there but, again, that was a quarterly timing issue.
Yeah. Okay. Thank you. Perhaps a question for Matt. It was a particularly strong result in business banking. Your loans are up 9% on PCP. NIMs up 3 basis points over the same period and 5 basis points in the half. That does somewhat fly in the face of, you know, the view that the market is facing elevated competition driven by both the Big Four and also other players in the space. So can you perhaps just talk about the competitive environment in business banking?
How do you see it playing out and what is CBA basically doing to sort of try and insulate the margin as much as possible as you do grow?
Yeah, look, I mean, I think the competitive context is intense and against that I think the team have executed extremely well. I mean, some of the things I think that stand out to us is, you know, a continuation of what we have now seen for many years in terms of, you know, transaction liability-led strategy, strong growth in account numbers, you know, strong growth in balances, as Alan touched on particularly in the fourth quarter. I think a very good track record over the last five or six years of, you know, high-quality risk identification in terms of lending, really leveraging the main bank relationship and having a much broader relationship with our customers.
We have seen also capabilities that the, you know, the team have developed is probably one of the things that stood out to us as well as, like, very good performance in small business. I touched on some of the growth in products like BizExpress which is, you know, largely unsecured and we have gone from, you know, sort of AUD 30 million to AUD 130 million. Now, you know, at some level they are still relatively small numbers but it has been the diversification of the lending growth that has been good. Small business has probably been roughly twice the margin of some of the other segments. They have been very disciplined up and down throughout all of the segments. We monitor closely in terms of the value of deals that we won't originate due to pricing, the value of deals we won't originate due to credit conditions.
And I think leveraging some of the technology both in the decisioning, speed of decision as well through to funding but also in terms of giving us the confidence to be able to originate across broader cohorts of customers where we have got that main bank relationship. We have also been able to, again, leveraging some of the technology to automate some of the account management processes substantially free up banker time. And so we are seeing, you know, much improved productivity in terms of facilities per banker. So I think in aggregate the team have executed extremely well and I think the result is another very strong one.
Thank you.
Thank you. The next question comes from Carlos.
Thanks, Mel. I am Carlos Cacho from Macquarie. You spoke to in the retail section lower deposit margins due to competition and shifting into high-yielding savings deposits.
Can you give us any color on, I guess, the mix shift you are seeing there from lower-rate products like NetBank Saver into the higher Goal Saver or potentially, you know, higher rates on some of the NetBank Saver accounts that are driving that?
Yes. I mean, I guess that has been a consistent trend. I mean, I talked earlier about the things that had changed between the first quarter and the second quarter but one thing that didn't change was the very strong level of growth that we continue to see into the Goal Saver product. So that is running, you know, multiples of the growth rate. And we are still growing in NetBank Saver but the key driver of savings account growth in the retail bank has continued to be Goal Saver .
And so the sort of mix effect and where we have called out previously the very strong level of, you know, balances that are attracting that high, the bonus rate on Goal Saver . So that is now up to 87% of balances attracting that high rate. We can see then on the quarterly trends on margin it is a consistent headwind. So very consistent over Q1 and Q2. It was about a basis point headwind in each of those periods due to the mix effect of that, the growth in that higher rate product. Yeah, I think specifically we are using.
Thank you. I guess.
Sorry, I was going to say we are using, you know, the Goal Saver product particularly. We have got some targeted offers in market.
I think we see a little bit more switching into the savings but there is probably less churn than we would have seen in other periods from savings into TD. I think, you know, again, the team have done a good job of optimizing across the various customer segments and trying to make sure we are getting the right overall margin outcomes while growing a bit above system as well.
Great. The other question I wanted to ask is more around the thinking longer term at these investments you are making. You are clearly investing a lot of money into technology and AI and you kind of spoke to those vendor inflation headwinds which appear to be, I guess, the tech companies wanting a return on their investment.
How do you think about the return on those investments you are making and, I guess, particularly how you think about that flowing through higher revenues versus potentially more productivity or lower costs in time?
Yeah, I mean, we have been very pleased with the yield from the investment and I think it is, particularly, there is a number of proof points in this result that we have called out that I think show that we are getting a measurable return on those investments. You know, we called out the productivity that we have seen as we have continued to digitize, importantly the work of a business banker. We have got much better mobile and digital platforms for our business banking customers, getting them to the sort of levels that we had achieved in previous years for retail customers and you see that coming through.
I mean, that is a big driver of the MFI growth that we have continued to see within the business bank, continue to underpin the transaction account growth. And then we have got a sort of 97% conversion of those transaction accounts into lending relationships which, you know, are seen as continuing to grow well above system in the business bank over the last 12 months. So, yeah, the yield from the technology investments, you know, we are seeing measurable returns both in the revenue side and in the cost side. So we have been pleased with that.
To your point, and that, again, is why we call out the IT vendor cost inflation. There is, you know, over the next few years there is going to continue to, you know, we are going to continue to see where the returns emerge from newer technologies between the technology companies themselves and the corporates who deploy those tools. Certainly over the past period of time we have been pleased with the return that we are generating through our franchise, but that is something that we will continue to manage and ensure we have got compatibility with lots of different vendors. We are able to switch providers in various areas, maintain that flexibility to ensure we maintain competitive, you know, have a competitive tension with some of our key technology providers, which I think is going to be important for every corporate over the next five, 10 years.
Thank you.
Thank you. The next question comes from Matt Wilson.
Yeah, good morning team. Matt Wilson, Jarden. Two questions if I may. If you look through the long-term CBA's key point of differentiation has been, you know, your largest stickier low no-cost deposit base and you are very effective at growing it as we can see today and your major bank peers have failed to close that gap through the decades for various reasons. But today we have sort of two new challenges out there. Macquarie who is the fourth peer and perhaps should appear in every slide where there is a peer comparison now going forward have put a line in the sand and then you have got AI.
If we embrace your enthusiasm for AI then does it follow that we will all have a personal AI bot that will automatically direct our savings and transaction accounts into the highest yielding accounts and a machine will do that for us? And on that basis today they moved to Macquarie. I have got a second question.
Yeah, I mean, look, Matt, I think on your first question, I mean, look, I think what the result demonstrates is our ability to perform in the current context we think we have got. So good strategic assets and sources. And the team have executed really well. We are, of course, alert to lots of different shifts in the competitive context. I mean, specifically maybe it is a little bit of a flow onto Carlos's question in terms of AI and technology. We have got a balance between sort of flexibility and scale.
I think in the near term for heavily regulated institutions I think, you know, it adds both complexity and governance. I do think one of the important things that we are certainly spending time on is where do we think AI has the potential to change the economics of the industry? What might the impact be around sort of competitive moats or enduring sources of advantage? How might that show up? I think there are lots of different ways that we envisage that we can compete extremely effectively in that environment. So, you know, I think we are both planning for the long-term, lots of different sort of scenarios. We think we have got the scale to invest.
We think we are uniquely placed and, you know, I think the team are highly motivated and very focused on execution and at least in this period I think it is a good example of it and we certainly intend to maintain that focus, discipline, and execution ability.
Thank you. And then a second question, probably linked to Richard's second question as well. If we look back, you know, over the last five years or so, headcount at the enterprise is up nearly 20%, you know, despite investments in AI and technology that should be driving efficiencies. You know, at some stage in the future there is obviously a big dividend to be reaped by taking people out of the organization. Could you comment on that opportunity?
Yeah, look, I mean, I think that is right.
In banking in Australia, there has been a significant increase in headcounts, at least in some of our areas though as well. I mean, it is, you know, our approach to the management of important risk types like financial crime has strengthened considerably. There are large operational and FTE requirements with that today. When we think about that more broadly, economic crime, cross scams, fraud, cyber, clearly the vector of threats that we need to be able to deal with is increasing on a daily basis. And absolutely some of the technology that we are deploying at the moment, you know, in time I think we will be able to make, you know, a meaningful improvement to the level of automation and efficiency with which we are able to deliver those services. A lot of the other increases have been in and around technology.
Obviously that has supported much higher levels of investment. Also into key frontline roles, notwithstanding the fact that we have been able to improve productivity on a per role basis but I think that has enabled us to grow at a faster revenue rate than peers which we think is important. So I guess to Alan's answer earlier, I think there is both revenue and cost benefits that have been delivered in this period. We are obviously, and, you know, Alan is tracking those benefits very carefully and clearly. We think it is really important to continue to sort of push for further sources of competitive advantage. I think that takes time but clearly we think there are, you know, some opportunities to manage the cost base over the medium term.
I just add one point, one point, Matt, around the five-year growth in the FTE.
Of course, about half of that growth just related to the insourcing that we had within our technology team. So we have moved away from third-party suppliers in many respects, brought our own engineers in-house. We are seeing a much more, much greater velocity, much greater quality, much greater productivity over that 4-5-year period as we have conducted that insourcing. So that has been a big part of the overall FTE growth but actually we are seeing again, we have called out some of the benefits we are seeing in terms of the engineering capability. Changes deployed is up 30% on the past 12 months. We are seeing that deployments at greater pace, greater speed, and greater quality. And so the work that we have done to insource into our FTE base the engineering capability we think is paying dividends.
Excellent. Thanks, guys.
Yes.
Thank you.
Our next question comes from Brian.
Hi. Thank you. And first of all, congratulations on the stonking result but more to the point, since you have been speaking you put on a lazy 3 or 4 bucks a share. So I had two questions. The first one is that if we have a look at CommBank we can see that you have got excess liquidity, long-term funding. You look at your software, you are increasing the expensing profile. You have got incredibly strong provisioning. When I have a look at the profit after capital charge it is up. You are saying that you normalized the dividend payout ratio for the current low loan losses.
I just would be interested to hear what is the scenario where we would start to see you harvesting the latency, and does that basically mean that we see a continued dividend growth even when system becomes more adverse? And then I have another question as well, please.
Yeah, maybe I will start, and then Alan can add to it specifically. I mean, BJ, as I know we have had this conversation before, I mean, a lot of the way we think about things is sort of maximizing value over the long term. We are consistently trying to find ways to invest in the earnings potential.
We are prepared to not seek to sort of maximize our performance in a particular period because we want to have the flexibility over, you know, a long period of time to both deliver very strong earnings growth and momentum but also to have, you know, substantial flexibility to be able to deal with a range of different scenarios. And so, look, I think this is clearly above the central scenario. I think the largest excess we have had at AUD 2.8 billion.
You know, there are clearly still tail risks particularly on a global basis and some of those are hard to, you know, accurately predict and price but, I mean, I think there is a number of different areas where we have got a lot of flexibility in the organisation but most importantly we want to translate a lot of the investments into long-term earnings potential, you know, going well beyond 2030.
Yeah, I mean, the balance sheet settings will continue to take us sort of through the cycle view as Matt says. I mean, the provisioning, we are pleased to withhold the provisioning at the, you know, broadly around stable levels albeit, you know, we are growing the lending side of the balance sheet very quickly. We have seen record levels of lending growth.
So the coverage ratio or the provisions as a proportion of the risk-weighted assets has drifted a little lower and so you have seen some unwind of the provisioning that we had held maybe 12, 18 months ago but, yep, we take it through the cycle view. We like having that latency and I think that gives us a more stable through the cycle performance which our shareholders really value.
Just a second question if I may. Once again, I really want to congratulate the entire management team on the result. If we have a look at some of the global peers in financial services in particular, as they seem to hit a kind of more adverse environment, they basically seem to be pulling the pin quite aggressively to shed labour.
I am just wondering, when we have a look at CommBank, is there a point at which you, how close are we to the point to which technology replaces people? I am not saying that you necessarily have to go out and retrench people but natural attrition probably gets you. But do we actually get to the point where we actually see basically the headcount element of the total operating cost fall and in that context can you see a point, Matt, and I never thought I would ask this question, where it is difficult to find more incremental to spend on technology?
I think in terms of tech spend and investment and software, I think demand, you know, across the economy is still sort of outstrips supply but, I mean, clearly the potential to be able to deliver a lot more change, I mean, significantly more than we are currently doing in year is clearly there, and I think some of the leading firms globally outside of banking are already seeing some of that automation. Look, I think there is going to be multiple sort of speeds for how AI is adopted across the organization, how it is able to improve and automate some of the processes. You know, I do think also it is important and certainly the approach that we are taking is thinking through that very carefully and thinking about the individual tasks and skills. I think it is really important to build the capability across the organization.
I think anything that is disruptive like this technology is. It is really important to, you know, engage inside the organization, maintain the, you know, the very high levels of engagement and motivation. I do not think some of the, you know, the more pessimistic scenarios around labor force disruption will materialize. I think it does take quite a bit of time. I think the sort of the performance of the models is, you know, quite jagged. There is also a number of different things that you can do really well. There are others that you candidly you cannot but I think the potential over time to, you know, improve certainly the performance of every individual, provide, you know, greater output and then in time through more automation. And there is also just a number of customer processes we think we can manage on an automated basis.
I mean, we believe in, you know, having to be able to service our customers in real-time, dealing with scams and disputes and fraud and to be able to, you know, perform and close those tasks out through an agentic framework to be able to serve many of our customers more directly and comprehensively. We have already got the capability to be able to, you know, monitor the environment and to, on an automated basis, deploy new rules in to pick up and detect fraud. I think we are just scratching the surface of the potential here and I do not think we are going to be talking about it in very significantly different ways at our full-year results in August but I think in a sort of three and a five-year timeframe I think there certainly is some significant potential.
And there are a lot of things that need to be managed as a highly regulated industry. I mean, I do think sort of, you know, governance and transparency and explainability and most importantly trust with customers and with employees, I think that that will be a very important part of what we need to do. Well, we have obviously started communicating externally with some of the work that we are doing and, you know, I think we are trying to think about this comprehensively and over a long period of time and we believe it is going to be a source of competitive advantage for CBA.
Thank you.
Thank you. Our next question comes from Brendan.
Good morning. Brendan Sproules from Goldman Sachs. I just have a couple of questions.
Just in terms of the impact of higher interest rates as we look forward into the second half, obviously in this, looking backwards this half has had record lending growth, particularly strong deposit growth in business banking as was touched on earlier on the call. But when you look back to when the Cash Rate was last 4.35%, you showed us a number of slides similar to Slide 18 which showed, you know, negative spending and cost of living pressures in the household sector and you also saw quite a slowdown in business credit. Just want to get your view on how sensitive you think the current system growth rate in both lending and deposits will be to these higher rates over the next six to 12 months?
Yeah, I mean, it is going to be, to your point, I mean, one of the things I called out in my opening was very strong level of credit growth leads to very strong growth in broad money and money supply and that is a factor that we look closely at in terms of the, I mean, we see a lot of that money supply growth come through our deposit accounts and that puts more money in people's hands ultimately across the economy and there is an inflationary element obviously to that mechanism. So, of course, the reason that rates are being hiked is in order to, you know, maybe slow down some of that demand more broadly across the economy, slow down that spending. So, you know, we would expect to see some impact to that.
We have had a very strong period for system growth across both home lending and non-retail lending across the system. We have got, our economics team has got a range of between 6% and 8% across the total system credit over the next couple of years. Obviously, we are running at the top end of that as we sit here today. So, look, I think there is, you know, maybe some, you know, you would expect some impact on system levels of credit growth in a higher rate environment. I guess the big question will be how many, you know, how many rate rises do we see from here because that will determine the sort of size of the slowdown you see from a credit perspective.
Yeah, I think, I mean, if you assume there is a couple of rate hikes, I think it is going to have a modest impact. I mean, even if it took a percentage point off housing credit growth, I think the non-retail credit growth has been very strong. Certainly, everything that we see is there. We think sort of higher nominal growth is going to support that. I think boosting investment is going to be an important driver of productivity.
I think there are certainly investments in technology, you know, across the economy that are going to support that and I think that is the importance of having, you know, the right sort of capital settings and deploying that lending growth into the right risk-adjusted returns and we have certainly, we have kind of extended out the sort of credit growth that we have seen over the last couple of years and I guess that is sort of our base case to make sure we are going to perform optimally in that environment.
That is great. Thank you. And the second question just on NIMs on slide 27, obviously one of the better parts of today's result is the lack of compression on your funding costs.
To what extent is this a timing issue in terms of the switch in the rate cycle that sort of happened towards the end of the fourth quarter? Obviously, with the RBA pushing rates higher earlier this month, we have seen some deposit product pricing move higher with that. To what extent is that, is that going to play out in the second half, a bit of catch-up in terms of deposit pricing for these higher rates?
Yeah, I mean, I think that as we have long said, I think the, I mean, deposits are very competitive and we are going to continue to see the mixed unfavorable mixed impact of that growth in our high rate products. So I think that is likely to continue. The other element that we watch closely is wholesale funding spreads. I mean, I guess you have seen a very benign period.
I mean, in the last six months, the five-year funding costs in the wholesale funding markets have fallen another 10 basis points. You tend to find there is a real correlation between what happens in wholesale funding markets and the level of deposit competitive intensity and deposit pricing. And so one of the forward indicators, the lead indicators that we will be looking carefully at around the likely outlook for deposit pricing and competition is that level of wholesale funding spread. We have had a benign period. We are below historic averages in a number of those long-term funding products. So we will keep a close eye on that in terms of how that, I mean, there is a potential for that to revert and that to lead to more deposit competition in the second half but we do not know that today.
We will keep a close watch on that.
Terrific. Thanks for that.
Thank you. Our next question comes from John Storey.
Thanks very much. Yeah, and good set of results as Brian was saying. Matt, I just wanted to touch quickly just on the business model and disruption, potential disruption to business models. You have seen it in the last few days. Insurance, broking firms have obviously been impacted by the threat of AI, right, in terms of distribution. Just thinking about it in terms of the mortgage market here in Australia, how prevalent brokers have become, I mean, what are your views on the likelihood of AI disrupting, you know, mortgage brokers so the disintermediators all could be becoming disintermediated? And around that, how well or how prepared is CBA in terms of its own business model for something like that that could potentially eventuate?
Yeah, no, we, I mean, look, we have tried to think through all the various sort of potential sources of disruption, not limited to mortgages and how to most effectively prepare for that. I think we feel we have got the right combination of distribution assets to perform well in that particular environment. I mean, I know from speaking to a number of mortgage brokers and some of the leaders of those mortgage broker firms, that is definitely on their mind. You know, I think like a lot of businesses, perhaps the sort of speed and rate of disruption is also, you know, a question of debate.
You know, I think one of the things that has been important in terms of why customers will, you know, still preference a, you know, a face-to-face experience with either a mortgage broker or a proprietary lender is, you know, it is a significant decision. I think people still value that. I would have, you know, incorrectly forecast the proportion of mortgages that would have gone to digital when we started sort of thinking about this, you know, 15 years ago and that, you know, it has been a lot slower. So, but look, I think it is important to think things through and assume they are going to happen more rapidly.
I think in our case, we think we are well prepared and I think there are very few sectors of the economy that are not thinking about some of the disruptive potential and, you know, obviously the rate and pace of change, particularly some of the, you know, agentic services that are out even in the last month. Certainly, there have been some pretty significant share price reactions to a number of global industry and software providers.
Matt, I mean, just quickly on a second question, obviously a lot of talk, I guess, has been going certainly over the last few weeks, months around increased levels of competition within the market and obviously you have got a very interesting slide, slide 73, 74 just around your new business volumes that are up, you know, significantly 24%, half on half, right?
I wanted to just get your views on, you know, to what extent, you know, this growth that you have ultimately seen reflects some of the competitors actually stepping back from the market, right? So I am thinking specifically around some of the regional banks and then obviously ANZ, you know, is going through a period of restructuring. You know, how sustainable is this level of new business growth that CBA is showing?
Well, I mean, I think, we will see, remains to be seen, but I mean, I think we, you know, executed well in the period. We are certainly planning to continue to do that. I mean, look, I do think it is quite interesting in terms of some of the share shift on the deposit side and then on the asset side.
I think, you know, where your returns are under pressure and you are not able to generate returns above the cost of capital, it is pretty hard to sort of like grow its system. Yes, there is disruption. I guess the other point occurs to us as we look at both, you know, capital ratios across the industry and what we would anticipate the DPS profiles might be at some of those institutions, it would probably start, it would tend to support pretty disciplined pricing. And so, you know, I think clearly where there is volume share shifts between institutions, that tends to at times lead to not particularly disciplined pricing. I think this has been a really good period for the half.
I think it is quite a, you know, I think it is an interesting equation, at least as we look forward and think about, well, if it is higher credit growth and the RWA consumption that comes with that, should not plan as your base case that, you know, record low loan losses are going to continue. You know, investment, certainly for us, we are increasing and we think that is important from a competitive perspective as well as to be able to support, you know, broader resilience objectives. I think, but maybe that financial equation looks a little, looks a little challenged perhaps for some. And so, I mean, look, I think we are thinking about how best to compete in that environment and I think hopefully at least this six-month period has been probably one of our better periods of execution in market. Excellent.
Thanks so much, Matt.
Thank you. Our next question comes from Matt Dunger.
Yes, thank you for taking my questions. Can I ask a deposit question in a different way? The 79% deposit funding stands out versus the peers. You have flagged you are expecting higher growth in higher rate deposits and we noticed that NetBank Saver did not reprice as much as some of your peers through 2025. So why compete on price when you are already leading deposit growth? Is there a target at CBA to continue to strengthen the deposit funding mix?
Yeah, I mean, we are always, we are predominantly deposit funded and we want to keep it that way. We have been, you know, impressed with the execution on the deposit gathering and it is a foundational relationship. It drives MFI.
It drives, as you can see in the numbers we have disclosed, 90% relationship between retail transaction account and home lending, propensity to have your home loan with CBA, higher in the business bank. So we, you know, it is an important, it is an important part of the franchise. We want to continue to gather deposits. Now, we are in a competitive market for deposits and hence we have got a very attractive offer on not only Goal Saver , you know, very, very, very attractive rate on Goal Saver with a very high proportion of balances that achieve that rate. We have also got very competitive term deposit offers. So the, you know, the 12-month term deposit specials that you have seen across the industry, I mean, they are up 45 basis points in the last six months.
So, you know, that, you know, it is an important part of the franchise. We are, you know, we will compete effectively in there. We have got, you know, we have been, you know, we have been happy with the improvement in the deposit ratio. I think it is a game of inches though on the deposit ratio. It is a, you know, it is a large balance sheet. We are continuing to compete well for deposits. We do not have particular targets that we set around that particular ratio. We want to keep funding as much of our lending growth as possible through deposits and pleasingly in the six-month period, deposit growth outpaced lending growth even though we had a very high level of lending growth relative to a very high system.
So we were able to retire AUD 2 billion of long-term wholesale funding which again is, you know, helps, helps in terms of the overall earnings profile and the interest margin. So we do not have particular targets that we set around that. We just try and keep things in balance and make sure we have got a strong deposit gathering franchise.
Yeah. Thank you very much. And if I could just follow up on the credit quality side, you are talking about bad debt charges being low. You just referenced some of the peers setting capital returns policies based on that. But you have seen the external refinancing of corporate exposures bringing down the arrears. Just wondering if this reflects your conservative lending settings or you are seeing competition for this corporate business as it refis out?
Yeah, we have continued to see, I mean, there is always going to be an element of external refinancing across each of the banks' portfolios. So we have seen some of that over the last sort of six and 12 months in particular within our business bank in particular. You know, it is a competitive market. There is, you know, we have seen some continued aggressive pricing offers in market, particularly at that top end of the business bank. I think we had called that out six and 12 months ago. That has continued into the last couple of quarters. We are seeing some banks compete more on credit risk appetite and we have seen, you know, some external refinancing from our portfolio. So yes, I think that is a function of the competitive market for business bank and that we are in at the moment.
Thank you.
The next question comes from Ed Henning. Ed, do we have you on the line? We might just move to the next question and perhaps we can come back to Ed if the line comes back. The next question we will take is from Tom Strong.
Oh, thanks, Mel. Tom Strong from Citi. Just a couple of questions. The first on the replicating portfolio. It contributed a basis point in the half and your commentary suggested that much of that came in the December quarter. How should we think about the replicating portfolio over the next couple of halves just given the material step up in swaps that sit sort of 50-100 basis points above the tracker rates now?
Yep. Yeah, there will be, you know, the trackers will perform well at current swap rates.
Now, the swap rates have proven to be obviously fairly volatile over the past 12, 18 months, but yeah, current levels of swap rate, I mean, there will be a pickup in each of the factors. So if you think about the size of a replicating portfolio, it is something like AUD 2 billion that we will reinvest at current swap rates each month. And so yes, that will be a function of where swap rates move, expectations for interest rates more broadly and the level of the deposits that we choose to hedge at any point in time. So yes, that will be a supportive element. I mean, the equity factor, we called out last time round, you know, if you go back three years where swap rate was then, it is pretty similar to where swap rate is today in the three-year part of the curve.
So we are not going to see much tailwind on equity tracker, but replicating portfolio given it is a five-year tracker, you know, we have probably got another two, three halves of positive earnings momentum as those, if you go back sort of four, five years, we were still in some pretty low, you know, pretty low rate environment. Some of the trackers that we put on there are coming up for reinvestment at much higher current rates. So yes, two or three halves of earnings momentum from replicating remain.
Right. Thanks. Thanks, Alan. And just a second question around business deposits. I mean, we look at the strong growth in the business bank, but net of offset accounts, a lot of this growth has come from more expensive TDs and the business MFI did sort of slip slightly half on half.
I mean, how are you seeing competition for business deposits more broadly given a number of your peers are spending pretty considerably to emulate your success here?
Yeah, I mean, it is a competitive market for deposits both for on the retail side and the business bank side. We have been pleased with the deposits that we have gathered. I mean, the new business transaction account openings have continued at pace. I think we are up 7% in net BTA accounts opened over the past 12 months. So pleased with that.
Yeah, we did, we did, I think there was a, there was a, there is a little bit of volatility. It is a six month moving average on MFI. I think we are up 40 basis points year-on-year in the longer-term trend. I think we are up 300 basis points over the last five years.
So you will see some oscillation one half to the next, but the overall momentum within MFI I think goes to the, you know, the good execution within that franchise over multiple years. And yes, there has been, you know, I think some, as I mentioned, Ellis, we got some attractive rates on the term deposit product as well, and that did particularly well in the six-month period within the business bank, which, you know, we are pleased with. It is a good stable source of funding for the strong lending growth that we are doing in that division.
Great. Thanks, Alan.
Thank you. That brings us to the end of the briefing. Thank you for joining us and please reach out if you have any follow-up questions. Thank you.