CBA earnings preview: $11 billion profit tipped as peers set a grim tone

The all-important Commonwealth Bank (CBA) reports its FY26 result on Wednesday, against a backdrop of deteriorating margins, softening credit quality and emerging stressed exposures that may force additional provisioning overlays.

It's a tough setup, and tougher still when you're the most widely criticised bank stock on the market, trading around x28 times earnings. The good news is that peers like Westpac and Judo Capital have already laid out the bad news.

Westpac (10-Aug): The 3Q26 update reported cash earnings up 2% to $1.8bn, broadly in-line with market expectations. However, core NIM rose just 1 bp to 1.78% vs. Morgan Stanley estimates of 1.81%. The real shock was in the Q3 slide deck, which showed average monthly mortgage application volumes down 11% quarter-on-quarter, with the post-budget run rate down 20% on 2Q26. On the earnings call, management noted "owner occupiers down 18% and investor down 26%". On new provisioning, management also flagged a fresh overlay. "We did raise a new overlay for discretionary spend... the knock on impact of the consumer that's making adjustments to the way they're living is we've just thought it was prudent to put in something around discretionary spend." Westpac shares fell 5.8% on the day, while the broader S&P/ASX 200 Banks Index dipped 2.7%.

Judo (25-Jun): Judo downgraded its FY26 earnings guidance by ~10% on three unexpected loan exposures that deteriorated rapidly. An implied FY27 guidance of $210-220m also sat 15-20% below consensus, driven by elevated credit losses and cautious macroeconomic assumptions. The stock fell 40% on the day, while the S&P/ASX 200 Banks Index fell 2.0%.

CBA won't escape its own set of misfortunes, but these two updates have already set a subdued tone for bank reporting season.

FY26 numbers to watch

Here's what Morgan Stanley (Aug-26) expects CBA to report tomorrow:

• Cash profit up 6.8% to $10.95 billion

• Net interest margin down 2 bps to 2.06%

• Cash EPS up 6.8% to 655.2 cents

• Full-year dividend up 4.1% to 505 cents per share

• CET1 ratio of 11.9% vs. 12.29% a year ago

While year-on-year growth is strong, the half-on-half picture is much more subdued, with Morgan Stanley forecasting 2H26 cash profits to rise just 1.2% to $5.51 billion.

Analysts are split on the second half. Consensus expects flat 2H26 earnings, while Morgans forecasts a 2% decline on flattish revenues and weaker-than-expected margins.

Plenty is weighing on the outlook, as the Iran conflict from late February stoked fears of slower credit growth and rising write-offs, which would lift loss provisioning. Then May's federal budget reforms to CGT, negative gearing and holiday-home deductibility hit the housing market. Residential mortgages make up around 63% of CBA's gross loans, with knock-on risk to business lending, where the bank has been growing aggressively.

"The risk is that credit quality has deteriorated with declining house prices in Sydney and Melbourne, albeit the major banks have a heavy weight in their loan loss provisioning to downside economic scenarios and still strong/low unemployment rates should continue to support credit quality," notes Morgans.

Analysts also think CBA could announce a flat final dividend as it seeks to "retain more of its earnings during a period of increased uncertainty".

The bottom line

A CBA result is always high stakes, but trading at 28x doesn't mean the stock can't surprise and run even higher.

Back at the 1H26 result (11-Feb), CBA delivered a solid beat, supported by strong lending growth, low loan losses and a better-than-expected dividend. The stock rallied 6.8% on the day.

• Cash NPAT up 6% to $5.45bn vs $5.20bn ests (5% beat)

• NIM down 4 bps to 2.04% vs 2.04% ests (in-line)

• CET1 ratio of 12.3% vs 12.3% ests (in-line)

• Interim DPS up 4% to 235 cps vs Morgans ests of 230 cps (2.1% beat)

As with every bank result, it comes down to margins and dividends. Whether CBA meets expectations on both will more often than not decide which way the share price moves.