The National Australia Bank Ltd. (ASX: NAB) share price has almost returned to pre-COVID levels. Will further interest rate cuts help maintain this upward trend?
NAB share price
NAB has cut fixed rates again this month. The lowest 2-year owner-occupied fixed rate fell from 2.04% to 1.89% yesterday. As for the lowest 2-year investor rate, it dropped by the same margin from 2.44% to 2.29%.
I note these rates are with a loan to valuation ratio of 80% or less on a package loan.
These rate cuts follow similar steps taken by other big 4 banks like Westpac Banking Corp (ASX: WBC) last week and Australia and New Zealand Banking Group Ltd (ASX: ANZ) last month.
NAB and Westpac appear to have the most attractive 2-year fixed rates below 2% compared to ANZ and Commonwealth Bank of Australia (ASX: CBA).
Impact of the rate cut
The lower interest rates will result in lower interest income for NAB but it may also enable them to better attract new home loans. Two rate cuts in a month tell me that NAB senses this is an opportune time to capitalise on the rising demand for property.
Most loan applicants are attracted to the lowest interest rate, so NAB is in a solid position to strike while the iron’s hot.
My thoughts
The additional rate cuts show the adverse impact of competitive pressures on the bottom line in the bank industry. NAB may be able to generate a greater volume of customers through lowering rates but at the end of the day, all banks will eventually record lower net interest margins due to the low RBA cash rate.
As such, I tend to steer away from industries that are heavily influenced by underlying economic factors like interest rates.
In saying that, bank shares do provide a stable source of dividend income, and this will likely return to pre-COVID levels once business conditions normalise completely.
If you are interested in reading more about NAB, please read Rask Media’s Jaz Harrison’s article, NAB (ASX: NAB) share price rises as profit recovers in FY21 Q1.
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