What is the outlook for CBA shares in FY25?

Can investors bank on another good year from CBA in FY25?

| More on:
A man in a suit smiles at the yellow piggy bank he holds in his hand.

Image source: Getty Images

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The Commonwealth Bank of Australia (ASX: CBA) share price has risen by close to 30% in the past year, as shown on the chart below. After such a strong year, investors may be wondering whether the ASX bank share can go on another run.

The focus on inflation and interest rates has dominated discussions regarding banks in the last couple of years. The performance of CBA's net interest margin (NIM) and loan arrears could be key moving forward into the 2025 financial year.

Keep in mind that CBA's FY25 first half involves the last six months of the 2024 calendar year.

First, we'll examine how the bank sees the outlook.

Challenges are building

When CBA released its FY24 third quarter update, the CEO Matt Comyn said:

We have continued to focus on supporting our customers and communities, investing for the future and providing strength and stability for the broader economy. We know that many Australians are feeling under pressure due to a higher cost of living, and we are here to support those customers that need our help.

We have continued to strengthen our balance sheet to ensure we remain well positioned to support our customers, communities, and economy. All Australians benefit from strong and stable banks.

The fundamentals of the Australian remain sound. Unemployment remains low, supported by business and government investment and elevated terms of trade. We recognise that all households are feeling the impact of higher inflation and higher rates, however immigration is providing a structural tailwind for the economy.

So, while the overall picture is still solid, there are pockets of weakness, though CBA is confident it can navigate any difficulties. which could mean good news for CBA shares.

Arrears do seem to be building at the bank – the ratio of home loans that were at least 90 days overdue was 0.43% at December 2022, 0.47% at June 2023, 0.52% at December 2023, and 0.61% at March 2024.

In the third quarter update, CBA said it expects to see "further increases in arrears in the months ahead given continued pressure on real household disposable incomes".

In terms of the NIM, CBA reported an 11 basis point decline to 1.99% in the HY24 result because of continued competitive pressures and higher funding costs.

Analyst views on CBA shares

The broker UBS recently noted CBA may see a softer fourth quarter on the revenue front, with CBA showing "good cost disciplined and management", though there has been a "visible deterioration" in asset quality metrics.

UBS notes CBA is leaning on its own distribution channels to defend and drive volume growth in mortgages, a strategy that has seen CBA grow at 0.7 times the rate of Australia's loan system.

The broker believes defending its 'back book' profitability remains a "key imperative" for management.

UBS has made a number of forecasts for CBA shares in FY25.

The broker has forecast CBA can generate $27.2 billion of revenue, $13.6 billion of pre-tax profit and $9.8 billion of net profit after tax (NPAT).

In terms of the dividend, UBS thinks CBA shares will have a fully franked dividend yield of 3.5%.

UBS has a price target on CBA shares of $105, implying the bank could drop by well over 10% in the next 12 months.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

Bank building with the word bank in gold.
Bank Shares

Why are ASX 200 bank shares REALLY surging in 2024?

Was it due to fundamentals, or purely sentiment?

Read more »

An unhappy man in a suit sits at his desk with his arms crossed staring at his laptop screen as the PointsBet share price falls
Bank Shares

Westpac share price dips despite APRA cutting risk capital add-on

Westpac shares are down, along with other ASX 200 bank stocks, despite good news from APRA.

Read more »

A man sits thoughtfully on the couch with a laptop on his lap.
Bank Shares

I predict this ASX bank stock to be the next in line to pop

I rate this ASX bank share as the best opportunity in the industry.

Read more »

Woman and man calculating a dividend yield.
Opinions

Would I be crazy to buy CBA shares now at over $132?

CBA shares have defied a host of bearish analysts to soar 29% in 12 months. Now what?

Read more »

Good news has these businesspeople cheering for joy, partying in a board room.
Bank Shares

2 uniquely Australian reasons why ASX 200 bank shares are outperforming global peers

Three of the Big Four ASX 200 bank shares hit new price milestones today.

Read more »

A mature-aged couple high-five each other as they celebrate a financial win and early retirement
Bank Shares

ANZ shares strike 7-year high, is it too late to buy?

Should investors view ANZ shares as an opportunity?

Read more »

A man thinks very carefully about his money and investments.
Bank Shares

BOQ share price rises amid rumoured takeover interest

Could another major move in the banking sector be on the cards?

Read more »

A woman frowns and crosses her arms.
Bank Shares

40% downside! Broker values CBA shares at $80 — is the fun over?

Valuations remain the top concern among brokers.

Read more »