The Commonwealth Bank of Australia (ASX: CBA) share price is in focus this month as investors get to grips with the latest changes for the banking environment.
Yesterday, the Reserve Bank of Australia (RBA) announced that it increased the Australian interest rate by 25 basis points to 0.35%.
CBA responded quickly by being the first big four ASX bank to pass on the full rate hike to variable loan borrowers. Time will tell what happens with savings accounts and term deposit interest rates.
CBA group executive of retail banking Angus Sullivan said:
This is an important time to support customers as some may not have experienced an interest rate increase since they took out their loans.
We are here to help customers who have loans and are considering how repayments might change. Some options available to help our customers manage repayments include fixing or splitting loans or setting up an offset account.
CBA said the new home loan variable interest rates will take effect on 20 May 2022.
Image source: Getty Images
What could happen next for the CBA share price?
No one can know what a share price is going to do any week, month, or even year.
While the CBA share price has moved up and down a bit in 2022, it's currently almost flat for the calendar year to date.
The broker Morgans is certainly not confident about the CBA share price rising, or even staying where it is.
Morgans currently has a price target of $77 on the biggest ASX bank. That implies a possible decline of around 25% over the next year.
There are a few different things that the broker is taking into account. It does note that the net interest margin (NIM) is expected to increase as interest rates rise. However, higher interest rates could mean more arrears/bad debts for borrowers.
It's possible that deposit balances may decline and investors may not find ASX dividend shares as attractive for income.
Out of the big four ASX banking options of CBA, National Australia Bank Ltd (ASX: NAB), Australia and New Zealand Banking Group Ltd (ASX: ANZ), and Westpac Banking Corp (ASX: WBC), it's NAB which is the broker's pick.
There are other brokers that are also negative on the biggest bank. Citi rates CBA as a sell with a price target of $90.75. Macquarie rates CBA as 'underperform' with a price target of $90.
CBA share price valuation
The different brokers have different estimates of the bank's outlook.
Morgans put CBA at 19 times FY22's estimated earnings.
Macquarie thinks that CBA's valuation is 20 times FY22's estimated earnings.
Citi thinks that the CBA share price is valued at under 20 times FY22's estimated earnings.
All three brokers are expecting the CBA dividend to increase.
The biggest dividend yield projection is from Citi. It's expecting CBA to have a grossed-up dividend yield of 5.3% in FY22 and 6.4% in FY23.
