Australia's largest bank, Commonwealth Bank, saw its share price plummet by 10.4 per cent to $153.67 on Wednesday, marking its worst single-day loss ever. The decline exceeded plunges seen at the onset of the Covid pandemic and the global financial crisis, with over $25 billion wiped off its market value.
The bank announced it had increased its credit provisioning by $200 million to a total of $6.5 billion, a move designed to cushion against potential bad loans if the economy enters a downturn due to the Middle East conflict. Although Commonwealth Bank reported a $2.7 billion profit for the March quarter, this was approximately two per cent below analyst expectations.
The sell-off of shares was likely exacerbated by the release of the Federal Budget on Tuesday night, which included changes to negative gearing and capital gains tax aimed at discouraging investment in properties. These changes are expected to reduce investment lending, thereby impacting bank earnings.
Other major Australian banks also experienced declines: Westpac fell 2.8 per cent to $35.57, ANZ dropped 1.6 per cent to $34.57, and National Australia Bank slipped 1.5 per cent to $36.86. Under the Labor government's changes, only those with existing negatively geared properties or those building new homes on vacant land will be able to claim expenses. Negative gearing allows property investors to deduct costs such as loan interest and maintenance from their taxable income.
Additionally, the capital gains tax discount will be replaced with indexation, meaning the original property price adjusted for inflation will be used to calculate tax on sale profits. A minimum 30 per cent tax on gains will take effect from July 1, 2027. Citi analyst Tom Strong noted that these changes make mortgage credit riskier for investors, potentially steering Australians toward improving their primary residences instead, which offer tax-free capital gains.
Commonwealth Bank also reported its highest level of personal loan arrears since 2019, with 1.71 per cent of consumers more than 90 days behind on payments. However, home loan and credit card arrears remained low at 0.69 per cent and 0.68 per cent respectively. The bank's CEO, Matt Comyn, stated that the provisioning top-up reflects heightened macroeconomic risks, including supply chain disruptions and higher fuel costs from the Middle East conflict. VanEck senior portfolio manager Cameron McCormack described the share drop as 'the first of a series of warning bells for the sector', noting that arrears are rising across personal loans, home loans, and credit cards.
