National Australia Bank Ltd (ASX: NAB) is one of the most popular ASX blue chip shares around. Should investors want to buy NAB shares?
What’s going on with NAB
The NAB share price is down by a third since the COVID-19 crash, but it has actually risen by 9.1% since 22 September 2020.
Australia’s government have been trying to give the economy another kickstart with jobkeeper starting to come to reduce.
Tax cuts had been legislated to start in a few years, but these cuts are going to be brought forward to help households and the economy. People earning over $90,000 annually will get a tax cut with the threshold for the 37% tax rate increasing from $90,000 to $120,000. The 19% tax rate will still start at $18,200, but the upper end of that bracket will be increased to $45,000. One of the key parts of this plan is that the tax cuts will apply retrospectively from 1 July 2020, meaning everyone who these cuts apply to will be helped immediately.
Lending laws are also going to be changed. Borrowers will get faster access to loans including mortgages, personal loans, credit cards and payday lending. The laws that help decide whether customers can afford loans will be relaxed. Banks are subject to standards set by APRA, but ASIC will be removed as a regular of bank lending obligations so that there isn’t duplication. The onus for loans will put more responsibility on the borrower to ensure credit is available. Customers will need to provide accurate information about the ability to repay a loan. One of the other changes is that mortgage brokers won’t be subject to responsible lending obligations.
NAB shares may also be reacting positively today because President Trump claimed he may be released from hospital early this week.
But the ongoing COVID-19 pandemic is still causing major issues.
Included in the half-year result was an $807 million provision relating to potential COVID-19 impacts.
NAB recognised another $570 million of credit impairment charges in the third quarter update.
Time to buy shares?
NAB shares are still attractively lower than before COVID-19 came along. But the situation has changed. It’s not as though investors are simply paying 33% less for NAB’s earnings. NAB’s credit provisions are rising rapidly and its net interest margin (NIM) is falling because of how low the RBA interest rate has gone.
Profit is taking a dive and it could take at least a few years for things to get back to normal. Thankfully, the number of deferred loans is reducing and hopefully that means more cashflow will head towards NAB again. However, these loans can’t be deferred forever and it takes some time for the bad debt process to go through each step, particularly with the rules helping homeowners stay in their properties longer than normal if loans weren’t being paid.
NAB’s dividend has been heavily cut. I don’t think it’s an attractive buy right now because although the price is low, its prospects have dropped as well. There are plenty of other ASX dividend shares I would rather buy first like Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and Brickworks Limited (ASX: BKW).
