By Scott Murdoch and Christine Chen
SYDNEY, Aug 12 (Reuters) - Commonwealth Bank of Australia said mortgage applications had dropped 15% since property tax changes in May, one of several challenges facing the country's largest lender even as it posted a record A$10.98 billion ($7.75 billion) full-year cash profit.
The bank also warned on Wednesday of a slowing economy as high interest rates and inflation pressured household budgets and economic activity.
Shares in CBA were down 1.3% mid-session, outpacing
a 0.7% fall in the benchmark index as investors questioned whether its high valuation was sustainable given the tougher outlook.
CBA's cash earnings for the financial year ended June 30 surpassed the Visible Alpha consensus estimate of A$10.85 billion and were up 7.1% on last year's A$10.25 billion. But its net interest margin - a key gauge of bank profitability - was 2.05%, down three basis points on the prior full year.
CBA Chief Executive Matt Comyn said home loan applications had fallen 15% since the Labor government's May 12 budget changed the generous tax concessions given to investors on property purchases. Investor lending applications were down 28%, CBA said, though Comyn said the decline had since stabilised.
The drop in applications followed similar warnings from rivals. Westpac said on Monday its home loan applications were down 20% since the changes were announced. National Australia Bank in late July flagged a 15% slide.
The changes have weighed on Australia's property market. Auction clearance rates have hit six-year lows and average property prices are down about 2% over four months, according to data from property consultancy Cotality.
"The really worrying thing about the (CBA) result, which is the case for all the banks, is that the application volumes have softened significantly," said Peter Gardner, Plato Investment Management senior portfolio manager.
"That doesn't feed straightaway into their overall profit numbers because it takes a while for those to kind of flow through. But I think that'll constrain their growth over the next year or two, depending on how long this slowdown lasts," he said.
MORTGAGE MARKET DOMINANCE
Australia's "Big 4" banks control about 70% of the country's mortgage market and home loans are a key driver of the banks' earnings.
CBA, the largest home lender, writes a quarter of the country's A$2.4 trillion in mortgages, according to industry data.
Shares in CBA are up 7.1% this year, the only gain among Australia's four major banks.
The bank remains one of the most expensive in the world as its forward price-to-earnings ratio outranks global peers such as JPMorgan, Bank of America and HSBC.
Investors are concerned the high valuation may not remain justified if the home lending slowdown persists.
"Can they be sustained in this type of environment? It's very hard to say that it could be sustained. And consequently, the market may look elsewhere for their growth options," said Sean Sequeira, chief investment officer at Australian Eagle Asset Management.
The Reserve Bank of Australia has raised the official cash rate three times in 2026 to 4.35% and has not ruled out a further hike, which would place additional pressure on the housing market.
CBA said its loan impairment expense stood at A$788 million, up 9% on the prior year, which the bank attributed to Australian customers facing cost-of-living pressures.
It also said it had accrued A$200 million in benefits from AI usage and forecast that to double in the 2027 financial year.
CBA declared a record final dividend of A$2.70 per share, compared with A$2.60 last year. The total dividend for the year was A$5.05, up 4% on the previous financial year.
($1 = 1.4170 Australian dollars)
(Reporting by Scott Murdoch and Christine Chen in Sydney and Roshan Thomas in Bengaluru; Editing by Shinjini Ganguli and Jamie Freed)
