Commonwealth Bank Shares Drop Due to Tax Changes and Provisions; Australian Banks Decline

• CBA reported cash net profit after tax of A$2.7 billion for Q3 (ended March 31), up from A$2.6 billion a year earlier but roughly 2% below analyst forecasts
• The government will limit negative gearing for residential property to new buildings only and replace the 50% capital gains tax discount with a 30% minimum tax on inflation-indexed gains
• Other major Australian banks also declined: Westpac down 3%, National Australia Bank down 2.6%, and ANZ Group down 1.65%, reflecting sector-wide concerns about reduced investor mortgage activity

Commonwealth Bank Shares Plunge on Tax Changes and Higher Provisions

Commonwealth Bank of Australia (CBA) shares dropped 9% on Wednesday following the bank's announcement of A$200 million ($145 million) in additional provisions and the federal government's housing tax reforms outlined in its annual budget.

Financial Performance:

CBA reported cash net profit after tax of approximately A$2.7 billion ($1.95 billion) for the three months ended March 31, up from A$2.6 billion year-over-year but roughly 2% below analyst forecasts. Loan impairment charges rose to A$316 million from A$223 million a year earlier. The bank's common equity tier 1 ratio stood at 11.6%, while net interest income grew 1% driven by increases in mortgages, business lending, and household deposits.

Tax Policy Changes:

Australia's Labor government announced significant housing tax reforms, including restricting negative gearing—which allows investment losses to offset taxable income—to new buildings only. The government also plans to scrap the 50% capital gains tax discount on assets held over a year, replacing it with taxation on inflation-indexed gains at a 30% minimum rate.

Market Impact:

Analysts warned these tax changes could dampen investor mortgage demand and slow housing market turnover, pressuring Australian banks' lending businesses. The broader sector declined: Westpac fell 3%, National Australia Bank dropped 2.6%, and ANZ Group declined 1.65%. The S&P/ASX200 index was down 0.7%.

Risk Outlook:

CBA attributed higher provisions to increased geopolitical and macroeconomic uncertainty, particularly Middle East conflicts disrupting supply chains. CEO Matt Comyn cited these factors as contributing to the bank's more cautious economic outlook and increased probability of a downside scenario.