Commonwealth Bank of Australia has reported a first-quarter cash profit of approximately A$2.8 billion, up 8% on the same period a year earlier, as growth in lending and deposits carried Australia's largest bank through a quarter in which more borrowers fell behind on their home loans.

The unaudited result, published on Wednesday 11 November, covers the three months ended 30 September 2026. Profit rose from A$2.6 billion a year earlier, although it was flat against the average quarterly result of the second half of the bank's 2026 financial year. Operating income grew 3% in the quarter, supported by continued growth in lending and deposits.

Lending growth did the heavy lifting

Business lending was the strongest part of the update. It increased 13.6% over the 12 months to September, growing roughly 1.3 times faster than the broader market, as the bank continued to take share from rivals. Home lending grew 6.6% over the year, while household deposits rose 7.7%.

The bank said it achieved that growth while keeping its underlying net interest margin broadly stable during the quarter, a sign that it did not have to sacrifice the profitability of its loans to win the extra business. Customer deposits accounted for 79% of the bank's total funding, and its common equity tier 1 capital ratio stood at 11.5%, comfortably above regulatory requirements.

Borrowers under strain

The weaker side of the update was credit quality. Home loan arrears increased by seven basis points during the quarter to 0.80%, with management attributing the rise to cost-of-living pressures from higher inflation and interest rates, alongside slower resolution of some overdue loans.

Loan impairment expenses also climbed, reaching $300 million for the quarter, up from the $234 million quarterly average recorded during the second half of the 2026 financial year. The bank's overall credit quality remains sound, but the direction of both measures will be watched closely: if more borrowers struggle to meet repayments, credit losses could put pressure on future earnings.

The bank pointed to the squeeze on households and businesses from elevated inflation and rising interest rates, and the latest arrears figures show that pressure is still building, even at a bank with the strongest balance sheet in the Australian market.

Shares slip despite the rise

Investors gave the update a cool reception. Commonwealth Bank shares were down around 1% on Wednesday following the release, although the broader Australian market was also trading lower after a weak session on Wall Street overnight.

The muted reaction reflects the mixed picture in the numbers. An 8% rise in profit is a solid result, but with earnings flat against the recent quarterly average and arrears moving higher, there was little in the update to change minds about a stock that already trades at a premium to its major banking rivals.

The result comes a week after the Reserve Bank of Australia raised its cash rate on 3 November 2026, a move that adds further pressure to household budgets but also supports bank lending margins. For Commonwealth Bank, the test in the months ahead will be whether lending growth can keep outpacing the gradual rise in credit costs.

Sources: Reuters and Motley Fool Australia.