Commonwealth Bank 1H26 results and AI update
Commonwealth Bank (ASX: CBA), under the guidance of CEO Matt Comyn, has once again proven why it’s considered the best Australian bank. Despite a muddy economic backdrop and fierce competition in the mortgage market, the bank’s half-year FY26 (1H26) results beat analyst expectations (again).
While the headline numbers were strong and will dominate today’s commentary, a more interesting story lies in the shifting dynamics of Australia’s largest lender.
The 1H26 snapshot (half-year ending Dec 31, 2025)
- Cash Net Profit After Tax (NPAT): $5.45 billion (up 6 per cent year on year), beating consensus estimates of $5.2 billion.
- Interim Dividend: $2.35 per share (fully franked), representing a circa 74 per cent payout ratio.
- Net Interest Margin (NIM): 2.04 per cent (a slight miss against the 2.05–2.06 per cent consensus).
- Impairment Expense: $319 million – a massive 21 per cent drop compared to the previous half.
- Common Equity Tier 1 (CET1) capital ratio: 12.3 per cent, comfortably above regulatory requirements.
The headline “miss” in the report was the Net Interest Margin (NIM), which landed at 2.04 per cent. Despite rising funding costs and aggressive home loan competition, most analysts had expected a slightly higher margin.
However, CBA grew its Total Revenue to $15.0 billion (+4.5 per cent) by increasing volume. Average Interest Earning Assets (AIEA) grew by 5.2 per cent, suggesting that even as the bank makes slightly less profit per dollar lent, it is lending so many more dollars that the bottom line continues to climb. Volume-over-margin allowed CBA to deliver a 5 per cent beat on Cash NPAT despite the margin squeeze.
A “Goldilocks” credit environment
Perhaps the most surprising part of the result was the $319 million impairment expense. Analysts had braced for much higher “bad debt” figures. For example, UBS predicted $419 million, citing fears cost-of-living pressures would finally catch up with the Australian consumer.
Instead, CBA reported non-performing loans continue to fall. An incredible 87 per cent of home loan customers remain ahead of their scheduled repayments. This suggests the Australian household remains remarkably resilient, despite the “higher for longer” interest rate environment, allowing CBA to reduce its balance sheet loan loss provisions and boost its earnings beat.
Business banking. The new growth engine?
While CBA dominates retail mortgages, Business Banking was the standout performer this half. The division saw a 14 per cent year-on-year profit surge, accounting for 42 per cent of the overall cash NPAT.
The CBA announced a focus on, and pivot to, business banking last year, and it seems to be paying off. This should be making NAB investors – hitherto the unofficial business bank – nervous.
As the retail market becomes more commoditised, and a massive gap emerges between what small to medium size enterprises (SMEs) would like to borrow and what banks provide, CBA’s strategic pivot toward business lending could ultimately pay off. By diversifying away from the low-margin mortgage war and focusing on the more lucrative business segment, CBA may be gradually building insulation against the housing market’s cyclicality and volatility.
AI Investment
I wonder to what extent CBA’s investment in artificial intelligence (AI) last year will underpin the next leg of CBA’s growth. So far the news seems very positive indeed. The bank used the 1H26 period to position itself as a “tech-first” institution, releasing a landmark and Australian-first report titled Our Approach to Adopting AI on February 5, 2026.
For the first time, CBA tied AI directly to a specific bottom-line saving. The bank revealed that its AI-driven scam and fraud detection systems – which scan over 20 million payments daily – were a primary driver in reducing customer fraud losses by 20 per cent in 1H26 compared to the same period last year.
The bank also highlighted the success of Compass AI, a generative AI tool for business bankers. It has already handled over 500,000 queries, allowing frontline staff to answer complex customer questions about three times faster than traditional methods. This is a key part of how the bank is managing the “cost jaws” mentioned in the results; they are using AI to absorb volume without needing to linearly increase headcount.
A notable detail buried in the 1H26 reporting was a $53 million gain from non-recurring items, which included a fair value gain on CBA’s investment in Gemini following its recent Initial Public Offering (IPO). It appears CBA is not just a consumer of AI, but an active venture investor in the ecosystem.
Growth vs. valuation
Despite the stellar result, or perhaps because of the AI-related potential, the stock continues to trade at a premium – roughly 3.2x Price / Book Value, which is two standard deviations above its historical average.
While the “core performance” (Pre-Provision Operating Profit) was up 5 per cent, the stock’s price-to-earnings ratio is 24 times, with some suggesting it’s “priced for perfection.” UBS, for example, maintains a “Sell” rating with a $125 price target, suggesting that while the bank is performing brilliantly, the market may be overpaying.
CBA’s 1H26 reflects a bank operating at peak strength with wins from AI already occurring. Balancing aggressive technology investment with disciplined lending, Matt Comyn and his teams are navigating a margin squeeze and intense competition, resulting in a confidence-reflecting $2.35 half-year dividend.
The Montgomery Fund and the Australian Eagle Equities Fund owns shares in Commonwealth Bank of Australia. This article was prepared 11 February 2026 with the information we have today, and our view may change. It does not constitute formal advice or professional investment advice. If you wish to trade Commonwealth Bank of Australia, you should seek financial advice.
Roger Montgomery is the Founder and Chairman of Montgomery Investment Management. Roger has over three decades of experience in funds management and related activities, including equities analysis, equity and derivatives strategy, trading and stockbroking. Prior to establishing Montgomery, Roger held positions at Ord Minnett Jardine Fleming, BT (Australia) Limited and Merrill Lynch.
He is also author of best-selling investment guide-book for the stock market, Value.able – how to value the best stocks and buy them for less than they are worth.
Roger appears regularly on television and radio, and in the press, including ABC radio and TV, The Australian and Ausbiz. View upcoming media appearances.
This post was contributed by a representative of Montgomery Investment Management Pty Limited (AFSL No. 354564). The principal purpose of this post is to provide factual information and not provide financial product advice. Additionally, the information provided is not intended to provide any recommendation or opinion about any financial product. Any commentary and statements of opinion however may contain general advice only that is prepared without taking into account your personal objectives, financial circumstances or needs. Because of this, before acting on any of the information provided, you should always consider its appropriateness in light of your personal objectives, financial circumstances and needs and should consider seeking independent advice from a financial advisor if necessary before making any decisions. This post specifically excludes personal advice.
