It’s entirely possible that Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) could follow National Australia Bank Ltd (ASX: NAB) in cutting the dividend.
If you didn’t see it, earlier this week the NAB Board decided to cut its half year dividend from 99 cents per share to 83 cents per share, a painful 16% cut.
There were several reasons for the NAB dividend cut; the Royal Commission remediation charges, the need to meet APRA’s ‘unquestionably strong’ requirement of a CET1 ratio of 10.5% and the weakening Australian economy.
Could A Dividend Cut Happen At CBA And Westpac?
Nearly all of the same factors could be applied to the two largest ASX banks. Westpac recently unveiled another $510 million (pre-tax) of remediation charges it would have to pay on top of everything else it has already disclosed.
CBA has said the financial advice ordeal is going to cost (at least) $1.46 billion to clean up.
If the Boards of Westpac and CBA are to maintain a healthy dividend payout ratio then this is a fair chance they made decide to, at least temporarily reduce the dividend.
The APRA CET1 ratio deadline is next year, so the banks can’t be giving out billions of dollars in dividends if they need to hold onto the cash.
Another problem for all the major banks, including Australia and New Zealand Banking Group (ASX: ANZ), is that Australian house prices continue to fall but mortgage delinquencies keep rising.
If borrowers aren’t paying their debts on time that could lead to a sharp rise in bad debts for the banks, much lower dividends and forced sales of properties. The banks don’t want that of course, but they can only be so lenient to late payers.
I find it alarming that some borrowers are in this position when interest rates are at record lows (and may go lower). It may seem that taking on as much debt as possible and buying tons of properties may not have been such a smart strategy.
Instead of the ASX banks, I would much rather position my portfolio with reliable ASX shares such as the ones revealed in the free report below.
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