Commonwealth Bank of Australia (CBA) – Demographic Questions

Commonwealth Bank of Australia provides financial services in Australia, New Zealand, and internationally. It operates through the retail, business, institutional banking markets.

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Commonwealth Bank (CBA) has been the dominant retail bank for many decades, a position driven by a broad network and strong brand impression on its customer base from early on in life, while this century its technology offering has cemented its prime position in the industry. This presence means CBA provides banking services to more than one-third of the overall population, and almost half of Australians aged between 15 and 34 years of age.

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Further bolstering its retail market position has been the number of migrants that choose CBA as their main financial institution (MFI)after arriving in the country. On our numbers, CBA gained a net 305,000 in migrant customers in FY24. This implies the new arrivals accounted for virtually all the bank’s growth in the 15–34 years age group, biased to foreign students who are required to show financial capacity to support themselves, with no contribution from Australian customers in the same age group.

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The migrant market is undoubtedly profitable but it does suggest pressure on the base retail franchise given its strategy of ‘owning’ customers over their financial life. Another change in customer mix worth highlighting, and perhaps unsurprising given the role of property in Australian household wealth, has been the increasing proportion of lending to ‘rich’ more established customers rather than mass-market borrowers, predominantly the younger customer.

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The returns from lending to wealthy investors and migrants are unarguable. Whether this customer skew is sustainable in the longer term is another question, given competitive pressures to attract and keep wealthy investors and an immigration rate that is set to slow irrespective of the political make-up of the next federal government. CBA is a first-class operation and the best banking franchise in the market, but that high quality comes at a (very) high cost. We maintain our Sell recommendation and target price of $105.00.

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