Big 4 Banks On Sale – Is Now The Time To Buy?

The big four banks have been caught up in the market mayhem today, all trading lower by more than 2%. Is now the time to buy National Australia Bank (ASX: NAB) and its peers?

The “big four” Australian banks alongside NAB are Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), and Australian and New Zealand Banking Group (ASX: ANZ). These four banks dominate the Australian market. For example, at the end of 2017, these banks held more than 80% of all Australian owner-occupier home loans.

What Happened Today?

The banks have been caught up in a down-day on the ASX, which has seen the ASX 200 Index (ASX: XJO) decline by more than 2%.

Upon market close today, the Westpac share price was down 2.4%, ANZ shares fell 2.7%, CBA shares were down 2.8%, and NAB was hit hardest, falling 3.5%.

The banks have been looking somewhat fragile lately and the share prices of all four have been falling following Tuesday’s announcement of another rate cut by the Reserve Bank of Australia (RBA).

With the official cash rate now at a record low of 0.75%, these banks have been unable to pass on the full rate cut to most of their loan products. This is a sign that the banks are starting to feel the pressure on their net interest margins (NIM), a key measure of their profitability.

Safety In Dividends?

It may be tempting to seek comfort from these share price falls in the banks’ dividend yields. ANZ and CBA both offer trailing dividend yields around 5.5% while Westpac and NAB offer yields above 6%.

However, keep in mind that the recent share price declines are in response to worsening conditions for the banks, which will likely have flow-on effects to the dividends paid. NAB already imposed a 16% cut to its interim dividend this year and several of the other banks had to increase their payout ratios just to maintain dividends.

All things considered, I’m not rushing to buy the banks for their dividend yield, as I think there are better options around.

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Disclosure: At the time of writing, Max has no financial interest in any of the companies mentioned.

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