Some Aussie bank stocks are in the red today, and that includes the Big Four.
At time of writing, Commonwealth Bank of Australia [ASX:CBA] has seen its share price drop by 0.60%. Both National Australia Bank Ltd [ASX:NAB] and Westpac Banking Corp [ASX:WBC] shares are down by 1%, and ANZ Bank Group Ltd [ASX:ANZ] is down by 1.59%.
What’s dragging the banks down?
It could have to do with something the Reserve Bank of Australia (RBA) said…
During an online speech for the Ayr’s Chamber of Commerce last night, the RBA’s Assistant Governor Michele Bullock said that while banks had gone into the pandemic in a strong position there were still risks.
So far, measures like JobKeeper, JobSeeker and loan and rent holidays have given households and businesses some needed cash. They’ve kept bankruptcies at bay.
As she noted, before the pandemic only 25% of businesses had enough money to pay three months or more of expenses. That number had increased to 60% by October.
The big question is: What happens once the support ends?
As she noted:
‘Business failures are currently much lower than usual because of income support, loan repayment deferrals and temporary insolvency relief. But this can’t last and we expect to see failures rise. Survey evidence suggests that around a quarter of small businesses that are currently receiving income support would close if support were removed now and trading conditions had not improved. While not all business failures will result in losses for the banks, it will have an impact on banks’ balance sheets. […]
‘The economic recovery is expected to be unpredictable and uneven so there will be rising business insolvencies and problems for some households in servicing their debts.’
Property plays a big role in this
Much of the growth in property we’ve seen has come from investors and high immigration.
It’s also created a kind of wealth effect, that is, when they see their home increase in price, people tend to spend more.
But with immigration at a standstill, no tourists and higher unemployment, we could see a knock on effect on housing too, and that would also impact the banks.
Are our banks safe? The Rum Rebellion’s editor Vern Gowdie tackles that question and more in his free report ‘How Do I Protect My Savings and Are Banks Safe?’
You can access it here.