Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy after the Reserve Bank of Australia (RBA) reduced interest rates?
Commonwealth Bank of Australia or CBA is Australia’s largest bank, with commanding market share of the mortgages (24%), credit cards (27%) and personal lending markets. It has 16.1 million customers, 14.1 million are in Australia. It is entrenched in the Australian payments ecosystem and financial marketplace.
Is The CBA Share Price A Buy?
The biggest Australian bank share price is down around 0.5% today and fell 2% yesterday in reaction to the RBA’s move and the bank’s subsequent decision on what to do with the interest rate on its loan products.
The RBA decided to cut Australian interest rates by 0.25% to 1%, with the idea that it will support employment growth and perhaps that inflation will be consistent with the medium term target.
In reaction, CBA decided to reduce the principal and interest repayment loans interest rate by 0.19% for investors, holding onto 0.06% of the cut.
However, interestingly, it decided to pass on the full rate cut of 0.25% for interest only borrowers, both the investors and owner occupiers.
It’s curious why interest only borrowers got the benefit. Was it to somewhat equalise the interest rate between the two sets of borrowers? Or are interest only borrowers showing signs of the most distress?
The bank will also only be passing on 0.15% of the cut onto its most popular savings account, the Netbank Saver whilst introducing a special five month term deposit rate introduced at 2.20% per year.
Is Commonwealth Bank A Buy?
Commonwealth Bank offers a trailing fully franked dividend yield of 5.3%. It’s not a good sign that the RBA felt it had to reduce rates from 1.5% to 1% so quickly to such a low rate. That could be an indication that mortgage delinquencies continue to rise. I think CBA is in a tight spot with these low interest rates, and who knows what’s going on with its arrears as of today?
That’s why I’d rather focus my portfolio on reliable ASX shares in the free report below rather than the big banks at the moment.
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