Australia’s Commonwealth Bank experienced a dramatic stock decline Wednesday, with shares falling 9% as the nation’s biggest home loan provider responded to new government tax policies and set aside additional funds to address global economic risks.
The banking giant reported quarterly cash profits of approximately A$2.7 billion ($1.95 billion) for the period ending March 31, representing an increase from A$2.6 billion during the same timeframe last year. However, these earnings fell roughly 2% short of what some financial analysts had predicted.
Banking stocks across Australia faced selling pressure Wednesday as investors expressed concern about potential slowdowns in mortgage lending following significant tax policy announcements made Tuesday by the federal government.
The country’s Labor government revealed in its yearly budget proposal plans to restrict negative gearing benefits for investment properties to newly constructed buildings only, aiming to increase housing availability. This tax strategy currently permits investors to deduct property-related losses from their overall taxable earnings.
Additionally, officials announced the elimination of the existing 50% capital gains tax reduction for assets owned longer than one year. Under the proposed system, taxes would apply to inflation-adjusted profits, with investors facing at least 30% tax rates on net capital gains.
Financial experts believe these policy shifts may reduce investor appetite for mortgages from Australian banks, as existing home sales activity could weaken significantly.
“Changes to negative gearing and CGT, which will dampen investor activity, come as rates are rising, consumer sentiment has troughed and construction costs are rising,” said Citigroup analyst Thomas Strong.
The 9% stock drop represents Commonwealth Bank’s steepest single-day decline since March 2020, marking a significant milestone for the financial institution.
Other major Australian banks also experienced losses, with Westpac shares declining 3%, National Australia Bank dropping 2.6%, and ANZ Group falling 1.65%. The broader S&P/ASX200 market index decreased by 0.7%.
According to the bank’s financial update, home loans, commercial lending, and consumer deposits all expanded during the three-month period ending March 31, contributing to a 1% increase in net interest earnings despite intense competition in lending markets.
Commonwealth Bank announced it would boost collective financial reserves by A$200 million after updating economic projections and increasing the probability of unfavorable economic conditions developing.
The financial institution reported that its net interest margin remained relatively steady for the quarter when excluding one-time benefits, though specific margin figures were not provided in the preliminary trading report.
The bank’s common equity tier 1 ratio, which measures available capital reserves, reached 11.6% at the end of March.
Loan loss provisions increased to A$316 million from A$223 million in the previous year, with the bank citing higher collective reserves due to growing geopolitical tensions and economic uncertainty.
“Conflict in the Middle East is disrupting critical supply chains and contributing to global uncertainty,” Chief Executive Officer Matt Comyn said.
