What’s going on in the banking sector?
Here’s the state of play right now:
The CBA share price is down another 5%.
The ANZ share price is down another 5.4%.
The NAB share price is down another 5%.
The Westpac share price is down another 4.4%.
It’s been a painful period for all of the major ASX banks. They are already facing payment holidays for their borrowers and lower interest profit margins (the NIM) because of Australia’s record low interest rate.
What’s happened over the past 24 hours?
International shares fall overnight
On a day-to-day basis the ASX usually follows what happened overnight in the European and North American share markets.
The FTSE 100 Index (UKX) dropped 3.8% and the S&P 500 Index (INX) finished 4.4% lower.
The longer it takes the global economy to recover from COVID-19 impacts the harder it will be for the big banks (and their borrowers) to get back to normal too.
Reserve Bank of New Zealand says: “No dividends”
The RBNZ has stepped in to make sure that the New Zealand financial system remains stable during this economic uncertainty.
During this period, there will be no ordinary dividends from NZ banks on ordinary dividends and they should also not redeem non-CET1 capital instruments.
Why does that hurt the major ASX banks? The major banks earn a sizeable amount of their total profit from New Zealand and a large portion of those profits are sent to the parent ASX banks each year. Those NZ profits have been quarantined for this period.
ASX bank shareholders seem almost certain to be facing a dividend cut this year. It could be better to buy these tech shares for long term growth rather than banks:
Disclosure: at the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.