As Australia's biggest bank and, indeed, the biggest company in the country, Commonwealth Bank of Australia (ASX: CBA) is widely held. Owning many of the leading brands and with the largest group of customers, 'Commbank' also enjoys a level of investment returns that its peers can't match.
Lending is, as you might expect, the company's primary source of business:
As you can see, most of the company's net profit before tax comes from Retail Banking Services (RBS) and Business and Private Banking (BPB). Institutional Banking and Markets (IB&M) is the next biggest, followed by ASB Bank in New Zealand (ASB), Bankwest (BWA), and Wealth Management (WM), which includes life insurance.
According to the segment data on page 64 of the latest report, retail banking contributes 51% of the group's profit before tax, a figure that climbs to 68% if you include ASB and Bankwest.
As the country's leading provider of banking services, Commbank is in an advantageous position to cross-sell products to its customers, including insurance, credit cards, stockbroking, and wealth management services. The ability of the banks to offer low-cost superannuation could lead to consolidation from existing customers looking for a simple one-stop-shop for managing their finances.
This is already occurring, as we can see, with the company's cost to income ratio declining over the last 5 years:
Part of this could be due to traditional cost cutting measures, although given the company's migration to online it is likely a result of being able to sell more products while costs stay relatively fixed.
On the downside, competition is only increasing, including through a variety of low-cost competitors for every category of business that the banks do. While Commonwealth Bank has a captive group of customers, financial education is on the rise and consumers are increasingly able to shop around for a better deal. Additionally, a whole raft of scandals have arguably damaged the company's reputation.
While some businesses like Wealth Management appear a potential source of growth for Commbank, this business will depend primarily on lending activity and its retail customers for years to come.
