Should You Still Invest In the Big Four Banks Given They’ll Be Hit By CGT Changes? Here Are 5 Reasons Why You Might!

The case to invest in the big four banks was in Australia’s booming property market…at least it was until the CGT changes. Much of the outrage has been over its extension to businesses and shares, but one could argue the impact on property will be more important, at least to the Big Banks.

Don’t take our word for it, Westpac told the AFR it has seen a 20% fall in applications for investor loans in one month. The average big‑four bank is down around 5% in a month, with CBA‘s 8% decline leading the pack. Those numbers may not sound dramatic in percentage terms, but in dollar terms they represent billions of dollars in market value wiped away in a matter of weeks. And it has wiped the smiles off the faces of retail investors who for 2 years between March 2023 and June 2025. saw shares go up even as just about every analyst said it was overvalued and would crash.

We don’t blame investors: if property investors pull back, credit growth will slow and margins will compress. Yes, first-time home buyers may replace investors, but they won’t be paying as much interest. Some may declare that the big banks have entered a structural decline. We think that conclusion is premature.

We cannot deny that CGT changes will have an impact. Namely, investor lending will soften and economic sentiment will remain fragile. But the big banks are not simply proxies for investor mortgages. They are diversified, capital‑rich, systemically embedded institutions with multiple earnings levers, and we think the recent sell‑off has created the first genuine valuation reset in years.

Here are five reasons the big banks still deserve a place in portfolios, even in a post‑CGT environment.

5 Reasons You Might Still Invest In the Big Four Banks

1. The banks are far more diversified than the headlines suggest

The market tends to treat the big four as if they are pure plays on mortgages, especially investor mortgages. They are not. The banks generate earnings from many sources such as business lending (SME and corporate lending alike), payments, wealth and insurance (in some cases, where still retained post the Hayne Royal Commission) and treasury and markets divisions.

Even at the peak of the investor boom, investor loans accounted for roughly one‑third of mortgage books. Today, that share is lower. A 20% fall in investor‑loan applications does not translate into a 20% fall in bank earnings. It translates into a modest drag on one segment of one division. The banks have multiple levers to offset that drag. They have done it before, and there’s no reason to think they will do it again.

2. Net interest margins are stabilising, not collapsing

The CGT changes have coincided with a period of margin pressure, and the market has conflated the two. But the margin story is more nuanced. The worst of the NIM compression cycle is behind us. Deposit competition has eased. Fixed‑rate rollovers are largely complete. Wholesale funding costs have normalised. And the RBA’s “higher for longer” stance has created a more stable rate environment than the market expected six months ago.
Margins are not expanding, but they are no longer falling at the pace seen in 2023–24.

For the banks, stability is enough. Their earnings models do not require explosive margin growth. They require predictability. And the rate environment in 2026 is far more predictable than the one we saw during the rapid tightening cycle. The market is still pricing the banks as if margins are in freefall. They are not.

3. Credit quality remains remarkably strong

If the CGT changes were occurring alongside a deterioration in credit quality, the bear case would be stronger. But that is not what the data shows. Arrears remain low. Impairment charges remain benign. Household balance sheets remain resilient. And unemployment, while edging higher, is still historically low.

The banks have been provisioning conservatively for several years. They entered this period with strong buffers, high capital ratios and a regulatory framework that forces them to hold more capital than almost any banking system in the world. A slowdown in investor lending is not the same as a blow‑out in bad debts. The former affects growth but the latter affects solvency. We believe we are seeing the former, not the latter. Investors often forget that the banks make more money from not losing money than from chasing growth. Credit quality is the single most important driver of long‑term bank profitability. And on that front, the system remains in excellent shape.

4. The sell‑off has created the first genuine valuation reset in years

The big four rarely trade at meaningful discounts. Their earnings are predictable. Their dividends are reliable. Their market positions are entrenched. And their regulatory environment is stable. That is why the recent sell‑off might be a good thing (at least for investors that have been sitting on the sidelines).

A 5% fall across the sector and an 8% fall in CBA may not sound dramatic, but in valuation terms it is the first time in years that the banks have re‑rated meaningfully without a corresponding deterioration in fundamentals.
Sorry but this is not Q3 of 2008 or Q1 of 2020: earnings expectations have not collapsed, dividends have not been cut. Capital positions have not weakened. The only thing that has changed is sentiment. Markets often overreact to sentiment shocks. The CGT changes have created one. But the underlying earnings power of the banks has not materially changed. For long‑term investors, valuation resets matter more than headlines.

5. The banks remain the backbone of the Australian financial system

This is the point that tends to get lost in short‑term debates. The big four are are systemically important institutions that sit at the centre of Australia’s financial architecture. They are the primary channel through which credit flows. They are the custodians of household deposits. They are the lenders of record for the majority of Australian businesses.

Their scale, regulatory oversight and capital strength create a level of resilience that few sectors can match.
Even in a post‑CGT world, the fundamental drivers of bank profitability remain intact: Australia’s population is growing, credit demand generally will rise over time and the mortgage market remains structurally profitable.

Looking at the banks more broadly, their other divisions have tailwinds too: business lending is expanding, digital payments continue to grow, capital requirements ensure stability and dividends remain among the most reliable on the ASX. That is why many bought them in the first place. Did you know just about every adult (with a super fund which would be most Australian adults, if not all) has exposure to CBA because all super funds own it? There’s a good reason: and its dividends.

The banks have never been growth stocks as much as their IR departments have tried to sell them as such. Rather, they are income‑and‑stability stocks. And in a market that has become increasingly volatile, that stability has value.

The bigger picture

There’s no denying that CGT changes will reshape investor behaviour because they reduce the attractiveness of leveraged property investment. And there will be a period of adjustment for the banks.

Even so, they do not change the structural role the banks play in the economy. They do not change the resilience of their earnings. They do not change the importance of credit intermediation. And they do not change the fact that the banks remain among the most profitable, well‑capitalised and systemically entrenched institutions in the country.

The market has reacted emotionally. It often does. But the fundamentals have not deteriorated in line with the share‑price moves. A 5% sector decline and an 8% fall in CBA represent billions of dollars in lost market value. They also represent the first meaningful opportunity in years for investors who understand what the banks are — and what they are not.

On the latter point: they are not high‑growth tech stocks, nor cyclical commodities plays, or even speculative turnaround stories. What are they? The financial infrastructure of the country and consistently reliable dividend payers – not necessarily high yielding but high-paying on a per share basis. And in a post‑CGT world, that matters more than it did before.