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This is due to their ability to retain the lion’s share of the retail A rising tide does lift all boats but when the conditions become
banking market in addition to earning a higher net interest margin unfavourable, the smaller or less structurally sound boats sometimes
income relative to its competitors. The key strength of CBA’s business struggle to stay afloat. CBA is the largest and most well-constructed
is its large and loyal retail customer base of around 10 million of the big four banks. The systems and structures set in place by
customers, compared to the smallest of the big four banks, ANZ with management have set the company up to be the best prepared of
around 5 million retail customers. its peers to ride out the short term volatility that may result from the
unpredictable external environment. If it ends up that the fears of
The recent results commentary from management of the remaining
big four and smaller banks have stated that they are losing market increased bad debts was overblown, this ensuing rising tide will
share due to increasing price competition. CBA’s ability to retain still benefit CBA as it has the largest market share and is the most
their market share despite such stiff price competition in a market profitable of the big four, both on an absolute and relative basis.
selling a relatively homogenised product is a sign of a high-quality The Montgomery Funds own shares in the Commonwealth Bank of
company. As funding costs across the industry are broadly similar, Australia. This article was prepared 24 November 2022 with the
the profitability metrics of CBA are telling us that they are charging information we have today, and our view may change. It does not
premium prices so the brand perception is sometimes just as, if not constitute formal advice or professional investment advice. If you
more important than the price itself. Being able to maintain large wish to trade the Commonwealth Bank of Australia you should seek
volumes of customers while earning high margins has naturally financial advice.
resulted in a relatively elevated return on capital, meaning CBA’s
Return on Equity (RoE) metrics have remained consistently above its
competitors throughout past and current interest rate cycles.
The highly profitable operations of CBA have manifested an
ability to invest more capital to ensure their market share is at least
maintained and/or grown, especially through their heavy ongoing
investment in technology upgrades for their internal systems
and customer products. CBA’s complete overhaul of its core IT
infrastructure some years ago still sets them apart from competition
and in a world where technology is moving at an accelerating
pace, it allows the savvy and efficient deployment of new products
at a pace with which its competitors have a hard time keeping up.

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