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'Sharing the Pain': Part Two Aussie Banks are no longer the cash cows in the COVID-19 era

Part Two questions the strength of Australian banks during the COVID-19 crisis.

Part One:

  • Banks being asked to share the pain, but this has flowed through to deferring dividends and growing credit impairment charges
  • Hits to bank profit margins have continued in an already low-interest rate environment
  • Lending, particularly to businesses, has been more difficult with banks asking to take on more risk for lower rewards (lower interest rates).
  • The Government has continued to openly state their support for the banks giving security to deposits.

Part Two:

  • The current deferral of consumer and business owner loan repayments is $160 billion while the market capitalisation of the banks is $260 billion.
  • COVID-19 will see many business owners and companies question their need for office and commercial space which will impact the banks even after the crisis has abated.

The keen interest in last weeks From the Bunker topic on banking, and the number of questions we received allowed us to continue with part two this week.

With the banks receiving hits to their profit margins in the form of credit impairment charges, it looks as if this won't improve in the short term. The low-interest rate environment doesn't help either further squeezing margins.

The Australian banks have been prodded to lend more to Australian businesses, but the increased risk and lower return doesn't appeal to the banks or their shareholders.

In this week's From the Bunker, we were again joined by special guest, Nathan Bell, Head of Research and Portfolio Management at Intelligent Investor. Nathan has researched and written extensively about Australian banks, and this is a prime opportunity to see where he thinks banks are heading.

You can read Nathan's recommendations at Intelligent Investor here. Get 15 days free if you do not already have a subscription.

Join us next week for From the Bunker: Income - Where to find the best dividends


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Part One Video:

Part Two:

Additional Questions from Part One answered here:


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