Banking giants are aggressively targeting SMEs, but near-term results vary wildly
Tucked away in Commonwealth Bank’s first-quarter update published this Tuesday was a double digit-figure that demands some serious attention.
CBA reported 10.4% year-on-year growth in its business-lending segment at one-times system multiple in the three months ending 30 September.
In other words, CBA’s business lending loan book is growing at parity with the wider business-lending market. CBA uses existing business lending data published by the Australian Prudential Regulation Authority (APRA) and the Reserve Bank of Australia (RBA) to arrive at these estimates.
This was actually below CBA system growth in the full year ending 30 June 2025, which came to 1.3-times system growth, but far above much of tier-one banking competition.
NAB, Australia’s largest business bank, grew its business-lending segment, labelled as the item line business and private banking (B&PB), by 7.3% in the financial year ending 30 September. To NAB’s credit, it was dragged by a slow first-half performance before staging a robust recovery in the second half.
Business lending at ANZ was a laggard, growing by just 3.4% in the financial year ending 30 September. ANZ boss Nuno Matos is well aware that more needs to be done here.
“Looking at our four main divisions, Institutional and New Zealand have performed consistently well, however Australia Retail and Business & Private Bank have underperformed,” Matos said on Monday when ANZ delivered its full-year results on Monday. “Despite growth in both assets and deposits, intense competition and a falling interest rate environment impacted margins.”
While it sounds like CBA is streaks ahead of ANZ and NAB, it is a bit of an apples-to-oranges comparison, as all three banks target different segments of the market.
Talking with MPA, Darren Sayers, director at Melbourne-based brokerage Energy Lend, sends a lot of volume to NAB and ANZ, as they operate in the lower-turnover end of the market. CBA, in comparison, has a premium client base with higher annual turnovers.
“We’ve typically worked with NAB and ANZ, as they’ve been really good in that small business space,” said Sayers.
Westpac comes in guns blazing
Either way, Westpac proved to be the dark horse, with total business lending up 15% in its financial year ending 30 September.
“This included strong loan growth in our target sectors of agriculture, health and professional services performing well,” said the bank.
Westpac hasn’t been shy about seeking a larger slice of the SME pie as part of his multi-year strategy to grow the company.
Following a period of growth, the bank’s business and wealth division under Paul Fowler now contributes roughly a third of group earnings.
Westpac has consistently emphasised momentum across deposits, transaction accounts and lending, underpinned by plans to bring in an additional 350 bankers by 2027.
“We serve one in five businesses today. I would love that to be one in four, in due course. We want more Australian businesses to call us their main bank,” Fowler said in September.
Aggressive hiring practices, including poachings from rivals NAB and CBA, have formed a key part of this strategy.
Given Westpac is growing its business-lending book at potentially 1.5-times system, it’s a strategy that is paying off.
Indeed, Sayers is not surprised at Westpac’s bullish growth in business lending.
“Westpac are trying to crack into that (small business) market,” said Sayers, adding that Westpac is starting to adjust its policies to reflect its stronger appetite for business lending.
“Pricing-wise (Westpac) is quite competitive,” added Sayers. “If they’ve got the biggest growth figures, that doesn’t surprise me.”
Why did CBA shares plummet?
CBA’s over first-quarter performance was good, with cash profits up, home lending growing ahead of the competition and operating income up 3% year on year.
But shareholders were evidently unimpressed, with CBA shares plummeting more than 6% following the results.
This could be read as a portent of tougher times to come for CBA.
Chief executive Matt Comyn himself warned that “we are closely watching the increased competitive intensity and implications across the financial system, and we will continue to adjust our settings as appropriate”.
But perhaps the sharp drop in CBA shares was less a reflection on CBA’s outlook and more a reflection on just how expensive its shares currently are.
At a whopping 27-times price-to-earnings multiple, CBA has some of the most expensive shares of any bank in the world. For a domestic comparison, Westpac is currently trading at a 20-times multiple, ANZ a 17-times multiple and NAB a 19.5-times multiple.
In the UK, Barclays is trading at a mere 10-times multiple and Lloyds a 14-times multiple. In the US, JPMorgan is trading at a 16-times multiple and Citibank at 14-times multiple.
In order to sustain such a high valuation, it’s incumbent upon CBA to justify it with promises of further spoils to come.
Comyn, however, is striking a more realistic tone about the heightened state of competition in banking and mortgage lending.
“I think it’s going to be a very complex and volatile context that we’re going to navigate through in the next few years,” he said. “There are pretty significant global forces that are going to influence and buffet Australia.”
One could say the same about CBA.
