Why did the CBA share price sink 5%?

Australia’s biggest lender has suffered a dropped in price the last few days. Shares in the bank fell as much as 5.7% in early trading in Sydney while the broader market (.AXJO) fell 1.0%, amid concerns of a weaker mortgage business in the high interest rate environment and the bank’s lending margins peaking.

Key points

• Brokers think that CBA’s margins can benefit from higher interest rates, however bad debts could rise
• CBA shares are down approximately 5%, which is a similar fall to the ASX 200
• Morgans thinks that there’s more declines to come for CBA shares, though the dividend is expected to rise

However, is not all doom and gloom when you peel back the layers as long-term shareholders would testify that while CBA shares have dropped 15% over the past week, it only registers an 8.5% drop in the last 6 months. They are also sitting at the same price it was before the COVID-19 crash of 2020.

Morgans is expecting a growing dividend from the big bank in the future. The estimated grossed-up dividend yield is 5.7% in FY22 and 6.25% in FY23.

After 8 rate hikes in 2022 and a further quarter-basis point raise last week, the central bank has indicated more tightening ahead to stamp out inflation. Soaring rates have cooled off the housing market and added to rising cost of living.

“We expect business credit growth to moderate and global economic growth to slow during 2023,” said Chief Executive Officer Matt Comyn.

“However, we remain optimistic that a soft landing for the Australian economy can be achieved.”

“We are conscious that many of our customers are feeling significant strain from rising interest rates, alongside the rising costs of electricity, groceries and other household items,” Comyn said in an analyst and investor briefing.

Comyn said some customers have drawn down savings and reduced spending, but they have not fallen behind on repayments yet.

To conclude the RBA interest rate hike was always going to affect the markets and cost of living, this much was advised at the Jackson Hole meeting last year. Many analysts and bankers hope that Australia has enough about them to have a soft landing and avoid a recession coming into 2023.

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Sources: https://www.fool.com.au/, https://www.reuters.com/