FILE PHOTO: A view of a Commonwealth Bank of Australia (CBA) logo in Sydney, Australia, May 5, 2025. REUTERS/Hollie Adams/File Photo

By Scott Murdoch

(Reuters) -Commonwealth Bank of Australia reported its best full-year cash earnings of A$10.25 billion ($6.69 billion) and a record dividend payout on Wednesday, but investors dumped shares in the bank considered one of the most expensive in the world.

Shares in CBA, Australia's largest lender, fell about 5% to the lowest level since May but the stock was still up about 10% for this year.

"We would sell here - CBA trades at a significant premium to our valuations and to its key peers," said Matthew Davison, Portfolio Manager at Martin Currie Australia, which is a CBA investor.

The bank trades on a price-to-book ratio more than triple the industry median, and at about 30 times earnings, or about double its Australian peers and much larger American banks like JPMorgan, according to LSEG data, making it one of the costliest in the world.

"This premium is disconnected from the return on equity and growth trends we see in these results and has been disproportionately driven by passive flows," Davison said.

CBA makes up about 12% of the Australian share market meaning some fund managers have to buy the stock to meet their mandates.

The bank's profit came in slightly higher than a Visible Alpha consensus of A$10.24 billion and climbed from last year's A$9.84 billion.

"We think the valuation is so high that people need the bank to actually beat expectations for it to maintain the very high price-to-earnings ratio," said Joseph Koh, portfolio manager at Blackwattle Investment Partners, adding there was nothing in the result that would otherwise drive the shares down as much as 5%.

CBA declared a final dividend of A$2.60 per share, compared with A$2.50 apiece last year. Its full-year dividend payout of A$4.85 apiece is the highest ever and topped analysts' estimates.

Its cash earnings rose on lending growth, especially in business banking, while underlying margins were stable.

Interest rate cuts by the central bank lowered the bank's total loan impairment expenses as economic conditions improved. The Reserve Bank of Australia on Tuesday cut the official cash rate to 3.6% in its third interest rate reduction this year.

CBA warned the broader environment remained characterised by "a rise in global macroeconomic uncertainty, increased geopolitical risk and continued domestic competitive intensity", but said it maintained "prudent balance sheet settings over the long term".

The bank said 85% of its customers were ahead on their mortgage repayments. However, despite the improving economic conditions, it said home loan payments delayed for more than 90 days jumped 5 basis points to 0.70%, the highest since at least 2018. Some customers continued to be impacted by cost-of-living pressures, it said.

CBA, which underwrites a quarter of Australia's A$2.2 trillion mortgage market, saw its home and business lending grow 6.1% and 12.2%, respectively, in the past year, both outpacing the average growth seen by the overall banking system.

Cash profit from business lending hit A$4.1 billion, up 8% on last year. The increase was the result of CBA making a concerted push to take market share from its major rivals.

CBA’s business lending share edged up to nearly 19% in the year, narrowing the gap with leader National Australia Bank, which held about 21% in March.

CBA's net interest margin, a key measure of profitability, rose 9 basis points from last year to 2.08%. The common equity tier 1 capital ratio, a measure of spare cash, was flat from last year at 12.3%.

($1 = 1.5323 Australian dollars)

(Reporting by Scott Murdoch in Sydney. Additional reporting Christine Chen in Sydney and Sameer Manekar in Bengaluru; Editing by Alan Barona and Sonali Paul)