The Commonwealth Bank of Australia (ASX: CBA) share price has had a rough week, falling by 10% on the day after the release of the Federal budget, though that day was also when the bank released its FY26 third-quarter update.
The CBA share price declined 14% between 7 May to 13 May. Both of those short-term declines are large considering Commonwealth Bank has a market capitalisation of more than $250 billion.
There were some big changes for investors to consider. The market clearly turned negative about the business this week. At this lower price, I'll share my views on the ASX bank share's attractiveness.
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Negatives
There were a lot of negatives that were revealed this week, though I think investors may have already seen hints of what was coming with the Federal budget.
The Federal budget saw negative gearing significantly curtailed for existing properties, aside from grandfathering. On top of that, the capital gains tax (CGT) discount has been changed to account for inflation instead of a 50% discount after 12 months of ownership.
The Motley Fool's Scott Phillips shared some poignant thoughts about the tax changes.
Who knows how investors will respond to these changes? Will it lead to lower demand for investor loans?
The CBA FY26 third quarter was not exactly an incredible quarter either.
Quarterly statutory net profit was $2.6 billion for the quarter, while cash net profit was $2.7 billion (down 1%) compared to the quarterly average of the FY26 first half.
The bank reported operating expenses growth of 1% (excluding restructuring and notable items) largely because of higher cloud computing volumes, software licensing and investment in AI capabilities. Operating income was flat. It's not ideal to see expenses growing faster than income.
Another negative was the loan impairment expense of $316 million, with higher collective provisions reflecting heightened geopolitical and macroeconomic uncertainty. It's prudent to have higher provisions in these uncertain times, but it does impact short-term profitability.
Positives about the CBA share price
Higher provisions aren't ideal, but as long as the bank's arrears and actual bad debts remain reasonable, then the bank's profit and financial picture should remain resilient.
Another positive to keep in mind is that the ASX bank share is now at a much more reasonable valuation. That may mean investors have a bigger margin of safety to make returns in the coming years. Plus, the dividend yield has been given a boost.
According to the (independent) projection on Commsec, the CBA share price is valued at 23.5x FY26's estimated earnings with a possible FY26 grossed-up dividend yield of 4.8%, including franking credits, at the time of writing.
I think one of the most positive updates from the quarterly result was the level of underlying business lending growth it achieved. It reported business lending growth of 12.5% (or $21.6 billion) – this could be a key offset for any slowing of home lending growth for the foreseeable future.
Additionally, it's important to remember there will still be some investor loans. Plus, could it mean higher demand for owner-occupier loans?
I don't believe CBA will be impacted as much as the market reacted, though I didn't think the CBA share price warranted being that high to begin with.
I still reckon that CBA is the best of the locally-focused bank and its valuation looks more reasonable compared to the other ASX bank shares now. I'd be more inclined to buy it now than a week ago, but I think other opportunities can provide stronger returns.
