The dividends of Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Group (ASX: WBC), Commonwealth Bank of Australia (ASX: CBA) and National Australia Bank Ltd (ASX: NAB) may soon be cut.

Why The Bank Dividends May Be Cut

The banks are already facing a tough time following the conclusion of the Royal Commission with millions upon millions of dollars having to be paid back to customers in remediation.

Indeed, NAB has already cut its dividend because of the profit pressures that it’s feeling.

However, the recent move by the Reserve Bank of Australia (RBA) to cut interest rates by 0.25% to 1.25% could herald further dividend cuts by the big banks.

Some banks like Westpac and ANZ Bank decided not to pass on the full rate cut but Commonwealth Bank and NAB did pass on the rate cut. In terms of just the lending and the net interest margin (NIM) it isn’t a negative for the banks.

However, the Australian Financial Review has reported that the big banks could collectively lose $3.5 billion in revenue from the hedging portfolios in the short to medium term.

The reason this would happen is because some capital that’s invested in assets with average yields of up to 2.2% going into assets with average yields of 1.1% because further interest rate cuts are expected.

Even if the banks were to cut dividends by 10% they would still have high dividend yields.

With half-yearly dividends of 83 cents per share, NAB has a fully franked dividend yield of 6.2%.

Westpac has a fully franked dividend yield of 6.7%.

Commonwealth Bank has a fully franked dividend yield of 5.4%.

ANZ has a fully franked dividend yield of 5.7%.

I’m not as worried about the big banks’ dividends as I am about their profits. There is no guarantee that the hype surrounding the Liberal election win will turn into profit growth for the bank. There is still a risk of rising mortgage defaults.


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Disclaimer: Any information contained in this article is limited to general financial/investment advice only. The information has not taken into account your specific needs, goals or objectives, so please consider consulting a licenced and trusted adviser before acting on the information. Please read The Rask Group’s Financial Services Guide (FSG) for more information. This article is authorised by Owen Raszkiewicz of The Rask Group, which is a corporate authorised representative No. 1264179 of Strawman Pty Ltd (ACN: 610 908 211) (AFSL: 501 223).

At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.