Owners of Commonwealth Bank of Australia (ASX: CBA) shares can probably gain a number of insights from the recent Westpac Banking Corp (ASX: WBC) result.
While they're not the exact same businesses, they are exposed to the same industry and risks.
The headline was that Westpac's net profit after tax (NPAT) declined by 1% year over year, but it was able to hike its ordinary dividend by 1% as well.
But that's not the main takeaway for CBA shares, in my view.
Arrears improve
For me, the most interesting thing from the Westpac report was that the ASX bank share's arrears significantly improved, suggesting that Australia may be through the worst of the interest rate and inflation pain.
Westpac reported that its Australian mortgages that were at least 30 days overdue dropped from 1.82% of total loans at September 2024 to 1.50% at March 2025. The percentage of loans that were at least 90 days overdue declined from 1.12% at September 2024, to 0.86% at March 2025.
I'd be very surprised if CBA's arrears also don't noticeably improve during 2025 too, which should be helpful for CBA shares.
Westpac also reported that its credit impairment charge was 6 basis points of average loans, down from 9 basis points. The ASX bank share said households are proving resilient, and levels of business stress remain low.
Credit growth
One of the key drivers of profit for banks is the ongoing growth of credit.
Westpac's economists are forecasting solid growth for loan demand in Australia in 2025. Housing credit could grow by 5.3% (compared to 5.5% in 2024), and business credit could grow by 6.4% (compared to 8.9% in 2024).
Australia's overall GDP is forecast to grow by 1.9% in 2025, compared to 1.2% growth in 2024.
As the biggest bank, I think CBA is well-placed to grow its loan book in 2025 and help profit grow.
Competition remains strong
One of the biggest headwinds for CBA shares this decade has been competition. On the ASX alone there are numerous names including National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Group Ltd (ASX: MQG), Bendigo and Adelaide Bank Ltd (ASX: BEN), Bank of Queensland Ltd (ASX: BOQ), MyState Ltd (ASX: MYS), and Pepper Money Ltd (ASX: PPM), all competing for borrowers.
The substantial presence of mortgage brokers in the loan system also intensifies competition and makes a loan more like a comparable commodity product.
Westpac said it's actively managing its margins in a competitive environment. The ASX bank share reported that its core net interest margin (NIM) was stable year over year at 1.8% with "persistent competition in lending and term deposits".
Overall, there were positives for owners of CBA shares, though competition remains a factor.
