Why the CBA (ASX:CBA) share price has fallen 26% since February

The CBA share price has fallen significantly this year as the bank works its way through the effects of COVID-19 on the economy.

The Commonwealth Bank of Australia (ASX: CBA) share price has dropped slightly at the time of writing to $66.02. However, it has fallen 26.16% since its February high of $91.05. 

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Why is the CBA share price down since February?

The coronavirus pandemic is the obvious factor affecting the CBA share price. But some investors may be wondering why it's still lower when Australia seems to be recovering from the effects of COVID-19.

The share price is down because the economic impact of coronavirus is still taking hold. According to some, it could get worse as fiscal stimulus packages, such as the government's Jobkeeper program, are no longer in place. Commonwealth Bank CEO Matt Comyn believes that the economy faces its biggest test next year when fiscal stimulus is wound back. He also predicts a long and uneven recovery.

This means that the hard times for CBA may be just beginning and with 10% of its loans currently deferred, the bank has a significant amount of borrowers that may struggle to repay their loans as normal.

In addition, CBA has predicted that house prices could fall as much as 10% nationwide, although it recently revised these forecasts down to 6%. If this took place, there may be borrowers who cannot repay their loans and in the case of default cannot sell their property at a price that will allow them to repay their loan. This could lead to a build-up of significant bad debt. 

While the bank has made credit provisions of $6.4 billion to absorb bad debts on its balance sheet, some have criticised this as inadequate. They have suggested that the bank may be in for a more negative scenario than it has predicted.

Despite all the doom and gloom, CBA's cash net profit was down by only 11.3% in the year to 30 June 2020 against the prior year, while its share price is down significantly more from February highs.

About the CBA share price 

The Commonwealth Bank is Australia's largest bank and offers a wide range of banking services. It has businesses in Australia and abroad. CBA has been listed on the ASX since 1991.

The CBA share price is up 25.8% from its 52-week low of $53.44, however, it is down 15.84% since the beginning of the year. The CBA share price is down 15.85% since this time last year.

Motley Fool contributor Chris Chitty has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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