Big Four Bank Shares Pull Back In May. Who Fared Best? (CBA, WBC, NAB, ANZ)

Australia’s major banks are in the midst of their worst month for a while, with the Big Four shedding A$50 billion in combined market cap after Commonwealth Bank suffered its largest single-day plunge on record and federal budget housing changes spooked markets already nervous about rising provisions and stubborn inflation.

Commonwealth Bank of Australia shares headed into the final trading session of May down 7.05%, though the stock has clawed back approximately 5 percent from its mid-month low following a brutal 10% single-session collapse on 13 May that erased roughly A$30 billion in value. Westpac Banking Corp ended the month 6.7% lower, National Australia Bank fell 6.97%, and ANZ shares fared best of the bunch, down 4.8%.

The sector underperformance was clear, as while the broader S&P/ASX 200 Index shed just 0.8% over the same period, bank stocks bore the brunt of selling pressure as macro concerns and earnings disappointments converged.

Sector Pullback In Short

The pullback accelerated after CBA’s 13 May trading update, which combined flat quarterly profit, higher loan-loss provisions tied to geopolitical risks, and coincided with the federal government unveiling proposed changes to negative gearing and housing tax treatment in its May budget.

The mix of events triggered a repricing of the sector, with investors questioning whether Australia’s premium-valued banks, and particularly CBA, could justify their valuations in a slowing credit environment. NAB shares are the furthest away from 52 week highs, ~25% down, whilst the remainder are between 15-17% off highs.

The month’s turbulence began in early May when National Australia Bank reported half-year cash earnings below market expectations, warning of an uncertain asset-quality outlook as the Iran conflict and associated energy price shocks rippled through the economy. NAB’s caution set a defensive tone, and within days three of the Big Four had flagged increased provisions for potential losses linked to geopolitical instability and domestic economic headwinds.

CBA’s 13 May update crystallised those fears. The nation’s largest lender reported modest net interest income growth of approximately 1 percent quarter-on-quarter but revealed it was setting aside higher provisions to cover potential stress if economic conditions deteriorate. Management explicitly referenced Middle East tensions and energy price volatility as factors clouding the outlook. While the bank’s underlying franchise showed continued growth in mortgages, business lending and deposits, the combination of earnings caution and the budget’s housing measures proved toxic for sentiment.

The federal budget’s proposed changes to property tax treatment were interpreted by markets as likely to reduce investor demand for residential real estate, potentially crimping mortgage growth and fee income for the banks. With housing lending comprising roughly 60 percent of major bank loan books, any policy shift that dampens property market activity carries material earnings implications.

Adding to the pressure, the Reserve Bank of Australia delivered a hawkish rate hike earlier in May, lifting the cash rate to 4.35% and signalling persistent concern about domestic inflation and capacity constraints. The RBA’s May Statement on Monetary Policy revised inflation forecasts higher and emphasised upside risks from energy shocks and global conflicts, reinforcing the likelihood that policy would remain restrictive even if the hiking cycle was nearing its end.

However, softer-than-expected labour market data released later in the month and a cooler inflation print shifted market expectations, with traders paring back the probability of another near-term rate increase.

What Lay Ahead For The Banks

The May sell-off has reset valuations across the sector, with CBA’s price-to-earnings multiple compressing from historically elevated levels and dividend yields rising as share prices fell.

Yet the earnings outlook remains clouded. Margin pressure is intensifying as deposit competition heats up and the tailwind from rising rates fades. Loan growth is moderating as cost-of-living pressures squeeze household budgets and business confidence wavers.

Analysts remain divided. Some view the sell-off as overdone, arguing that the core franchises are resilient, capital positions are strong, and the RBA is likely at or near the peak of the tightening cycle, a backdrop that has historically been constructive for bank valuations over a six-to-twelve month horizon. Others caution that peak earnings are behind the sector, margin expansion is exhausted, and the combination of slowing credit growth and rising provisions points to a multi-year earnings headwind that justifies lower multiples.

Australia’s Big Four banks have weathered a punishing May, but the fact that losses were contained to mid-single digits despite a historic CBA rout, budget shocks and RBA hawkishness suggests the sector retains a defensive core that income investors are reluctant to abandon entirely. Whether the current valuations represent a genuine buying opportunity or merely a pause in a longer pullback will be known in time, but for now, bulls will be glad to see the back of May as the weekend approaches.