Banks earn a wider margin on business lending than on home loans. Here's what the gap pays for.

A bank's net interest margin is the interest it earns on loans and other assets, less what it pays on deposits and wholesale funding, as a share of the assets that earn interest. Each major bank splits its results into divisions and reports a margin for each one. These are whole-division figures that include what the bank makes on each division's deposits as well as its loans, so they describe the bank's economics and are never quoted to a borrower. It's one of the first things I learned as a consultant back in the day, building a bank financial model for one of Australia's largest corporates weighing up a move into banking. Years later I ran the lending P&L at Uber, where the margin decided what we could offer drivers and restaurants.

The chart lines up each major's business division against the retail division where most of its home loans sit, using the most recent results each bank has published. CBA reports a full year to June 2026; NAB, ANZ and Westpac report halves to March 2026, the most recent set when this was written, and we'll redraw the chart when their full-year results land in November. Scroll down and the chart builds one layer at a time, ending on the capital each division holds.

Compare each bank with itself before comparing banks. The divisions are drawn differently at each of the four, and CBA's and NAB's business divisions each carry more than $110 billion of home loans on their books. What holds across all four is the direction of the gap. For a reference point, Judo Bank, which lends mainly to small and medium businesses, earned 3.13% across the whole bank for the year to June 2026, inside the range of the majors' business divisions, while CBA's whole-group margin was 2.05%.

The biggest part of the answer is capital. APRA's rules make a bank hold capital in proportion to its risk-weighted assets, and a loan to a business carries a heavier weight than a mortgage over someone's home. Divide each division's risk-weighted assets by its average interest-earning assets and the difference shows up plainly. CBA's business bank carried $64 of risk-weighted assets for every $100, against $40 in retail. NAB's figures were $64 and $36, and Westpac's $76 and $33.

Shareholders' equity is the most expensive money a bank has, and it expects a return on every dollar of it. If a business loan ties up 1.6 to 2.3 times the capital of a home loan, the bank needs a wider margin on it to earn a comparable return on the equity sitting behind it.

Competition works on both sides of the gap. CBA said its retail margin slipped on lower home lending margins "primarily due to competition", and it listed increased competition among the reasons for lower business and home lending margins inside its business bank as well. The business division's margin still rose 7 basis points over the year, helped by higher earnings on its replicating portfolio and equity hedge and a favourable asset mix, so the gap widened from 81 basis points in FY25 to 89 in FY26.

Your own pricing also comes in two layers. The margin sits on top of a benchmark, usually BBSW for floating business facilities, and the benchmark moves with the market every business day. We covered that layer in how BBSW sets your business loan rate.

Loss charges look small in a calm year. The margin also has to cover how fast they can turn. CBA's business banking loss charge went from 0.06% of lending in the half to December 2025 to 0.15% in the half to June 2026. Over the same half its troublesome and non-performing business exposures rose to 2.44%, which CBA put down to downgrades of "a small number of customers in the Commercial Property and Manufacturing sectors". A handful of files moved the numbers on a $180 billion business loan book.

Where a bank reports the same stress measure for both sides, the difference is wide. At Westpac, 4.58% of Business & Wealth exposures were classed as stressed at March 2026, against 0.74% in Consumer. At NAB, impaired and defaulted loans came to 2.43% of Business and Private Banking lending against 1.16% in Personal Banking. At Judo, loans 90 days past due or impaired rose from 2.43% to 2.90% over FY26, with the bank pointing to several larger impairments. CBA's home loans 90 days in arrears, by comparison, were 0.75% at June 2026.

A home loan book is a very large number of similar loans, so its losses tend to move slowly. A business book holds fewer, larger and more varied exposures, and one sector or a few borrowers can shift it in a single half. The margin gap is the price of carrying that. The same lumpiness is why lenders read a commercial file so closely, and we've written up why banks decline commercial property loans for the most common reasons a file stalls.

The divisional numbers set the backdrop, and your own margin is set at approval, file by file, from the lender's read of the risk in your loan and the capital it has to hold against it. The parts of a file that move that read are the ones that change the risk weight and the chance of a loss.

The security

A registered mortgage over property gives the lender a recovery path, and it generally prices that in. A loan secured only by business assets carries more risk for the bank and a higher margin to match. We look at that trade-off in do you need property to buy a business.

The loan to value ratio and the servicing

A lower loan to value ratio and income that covers the interest with room to spare both cut the chance of a loss. For an investment property that means the rent, the lease term and the tenant. For premises your business occupies it means the trading accounts, and the assessment differs enough that we cover it separately in owner-occupier vs investor commercial property loans.

The sector and the rest of the relationship

Lenders' appetite moves by sector, as CBA's downgrades in commercial property and manufacturing show. Deposits matter too: every divisional margin above includes deposit earnings, so a business that runs its transaction banking with the lender adds to the bank's side of the ledger. In our experience the file itself moves the margin most: a steady trading record, clean security and a sensible LVR tend to price better than the same loan with gaps, though how far it moves varies by lender and by deal.

If the property is in Victoria, our guide to commercial property finance in Melbourne covers how lenders read the city's markets. For the national picture across asset types and lender tiers, start with commercial property finance in Australia. When an existing facility was priced a few years ago, refinancing a commercial property loan is often where the margin gets tested again.