The ASX bank share Commonwealth Bank of Australia (ASX: CBA) has made significant progress over the last three years, rising by approximately 70%, as the chart below shows. The past is interesting, but the next three years are much more important.
CBA has benefited from a recovery in confidence about the banking sector. RBA cash rate cuts have reduced the pressure on borrowers while also seemingly increasing demand for loans, with the housing market picking up.
The bank is an essential presence for the economy and the S&P/ASX 200 Index (ASX: XJO). But CBA's success also relies on the Australian economy.
Let's look at the potential outcomes for the business over the next few years.
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Leadership
The bank recently held its annual general meeting (AGM), and we heard some comments about expectations regarding the leadership.
UBS pointed out in a note that Paul O'Malley was reappointed as chair for his final three-year term, which the broker views as a positive.
O'Malley also mentioned the appointment of a replacement for the CEO would be a job for the next chair. In other words, the current CBA CEO Matt Comyn is likely to be in his role until at least 2028, which UBS views as a positive, removing some of the succession uncertainty.
During his time as CEO, CBA has reportedly compounded its tangible book value per share at a rate of around 2.5% per year, higher than its peers.
UBS noted that questions at the AGM from shareholders and proxy providers primarily focused on CBA's use and deployment of AI and job security for Australian employees, especially given the sector's recent restructuring activities.
AI, efficiencies and costs
UBS has pointed out that the global best-of-breed banks, with a similar net interest margin (NIM) and market structures, operate with cost-to-income ratios closer to 40%, compared to CBA's current ratio of around 45%.
The broker said that, overall, investors believe improving efficiency, if needed in a tougher revenue environment, could be a source of positive earnings surprises for CBA over the forecast period, which it estimates at between 2.5% to 3.5%.
The broker also noted that full-time employee equivalents have increased from around 44,000 in FY20 to 51,400 in FY25 – a rise of 17%. UBS suggested that FTW might only reduce if CBA slows the pace of current hiring and sees natural attrition revert to longer-term averages.
Profitability
CBA made $10.1 billion of net profit in FY26. Profitability is a key driver of the share price, so how profit performs could be key for shareholder returns.
UBS is forecasting that the company's net profit could rise in the coming years to $11.25 billion in FY28, which would represent a gain of 11% over three years.
Dividend yield
UBS is expecting the bank's dividend yield to grow in the next few years, but not by a lot. The dividend yield is predicted to be 3%, excluding franking credits, in FY26.
The dividend yield is projected to increase to 3.2% by FY28, which suggests a rising dividend, but that still wouldn't be very high at all.
CBA share price valuation
At the time of writing, the CBA share price is trading at 26x FY26's estimated earnings. If it were to trade at 26x FY28's (estimated) earnings, then the CBA share price could trade at approximately $175 in three years. That doesn't suggest much capital growth over the next three years, so there could be better opportunities out there.
