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

Name: 'Sharing the Pain': Part Two Aussie Banks are no longer the cash cows in the COVID-19 era
Uploaded: 2020-05-08T14:31:57
Description: Part Two questions the strength of Australian banks during the COVID-19 crisis.

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

By Evan Lucas · 8 May 2020

By Evan Lucas ·
8 May 2020

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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

Part One Video:

Part Two:

Additional Questions from Part One answered here:

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Frequently Asked Questions about this Article…

How are Australian banks being affected by the COVID-19 pandemic?

Australian banks are facing challenges due to the COVID-19 pandemic, including deferred dividends, increased credit impairment charges, and hits to profit margins. The low-interest rate environment further squeezes their margins, making lending less appealing.

What is the impact of deferred loan repayments on Australian banks?

The deferral of consumer and business loan repayments, amounting to $160 billion, is putting pressure on Australian banks. This deferral impacts their cash flow and profitability, as they have to manage increased credit risks without immediate returns.

Why are Australian banks hesitant to lend more to businesses during the pandemic?

Australian banks are hesitant to lend more to businesses because they are being asked to take on more risk for lower rewards. The low-interest rate environment means lower returns on loans, which doesn't appeal to banks or their shareholders.

What role does the government play in supporting Australian banks during the pandemic?

The government has openly stated its support for Australian banks, providing security to deposits. This support aims to maintain stability in the banking sector during the economic challenges posed by the pandemic.

How might the demand for office and commercial space affect Australian banks post-COVID-19?

Post-COVID-19, many businesses are questioning their need for office and commercial space, which could impact banks. A reduced demand for such spaces may affect the banks' commercial lending portfolios and property-related investments.

What insights does Nathan Bell provide about the future of Australian banks?

Nathan Bell, Head of Research and Portfolio Management at Intelligent Investor, provides insights into the future of Australian banks. He discusses the challenges they face and offers recommendations, which can be accessed through Intelligent Investor's platform.

How can investors learn more about Australian banks' strategies during the pandemic?

Investors can learn more about Australian banks' strategies by following discussions like 'From the Bunker,' where experts like Nathan Bell share their research and insights. These sessions provide valuable information on how banks are navigating the current economic landscape.

Where can investors find reliable information on bank dividends during the pandemic?

Investors looking for reliable information on bank dividends during the pandemic can join sessions like 'From the Bunker: Income - Where to find the best dividends.' These discussions offer guidance on dividend opportunities and strategies in the current market.