Commonwealth Bank of Australia (ASX: CBA) stock has been a very impressive investment for investors. It's not just luck that the business has been able deliver what it has achieved.
CBA faces a lot of competition in the banking sector that would love to take some of Commonwealth Bank's market share, including Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), ANZ Group Holdings Ltd (ASX: ANZ), Macquarie Bank Ltd (ASX: MQG), Bank of Queensland Ltd (ASX: BOQ), Bendigo and Adelaide Bank Ltd (ASX: BEN), MyState Ltd (ASX: MYS) and Pepper Money Ltd (ASX: PPM).
CBA may be the biggest ASX bank share, which does provide some advantages such as scale benefits. But, there are a few other things that I believe are essential for its current and future success.
Strong connection to customers
I believe one of the main reasons that CBA is able to perform so well for shareholders is that it has a good connection with its customers.
In my view, some banks have lost a bit of their brand power/economic moat with more of their loans going through mortgage brokers. Borrowers are able to easily compare numerous loan options and choose the cheapest one, or whatever other factor means the most to them. If banks compete on price, that is likely to lead to lower profit margins.
CBA confirmed this in its FY25 result, noting that broker-originated home loans are between 20% to 30% less profitable than proprietary channels. Pleasingly, CBA said it accounts for around a 52% share of the proprietary flows across the entire market.
Excluding Bankwest, in FY25, around two thirds of CBA's home loans were proprietary and only 33% came through brokers. As you'd expect, this has a pleasing effect on CBA's margins (and is helpful for CBA stock).
High profit margin
If CBA is paying less to brokers than other banks, then it's no surprise the bank is able to deliver a stronger margin on its lending (minus the cost of funding) – this is measured with the net interest margin (NIM) statistic. That's a great boost for CBA stock.
In FY25, CBA's NIM was 2.08%, which increased by 2 basis points (0.02%) on an underlying basis. It achieved this despite the impact of increased competition on deposit pricing.
In the FY25 first half result, NAB reported a NIM of 1.7% and Westpac reported a NIM of 1.88%.
This suggests that each loan CBA writes makes more profit on average than one written by NAB or Westpac.
Good outlook for market share
Despite already being the largest bank, CBA continues to deliver further market share progress, which is an important driver for the CBA stock price.
In FY25, CBA's home lending grew by 6.1%, while the loan system increased by 5.8%. CBA's business lending increased by 12.2%, compared to an 8.6% rise for the system.
The bank has worked hard on its online banking and app to provide the best experience for customers. This has led to it being the main financial institution for around a third of retail customers and 27.3% of business customers. It has a market share of more than 40% of Aussie adults that are 34 or younger.
The fact that it has the strongest customer satisfaction in the banking sector for both consumer and business customers says to me that it's likely to maintain its current market share, could continue gaining market share and its proprietary channels could remain a key driver of its lending.
