Westpac Banking Corporation's (ASX: WBC) chairman Lindsay Maxted says the days of double-digit growth for the banks is long gone, in a warning to bank shareholders.
He blamed the high Australian dollar, global uncertainty, and deleveraging from a high base for weak credit growth. Annual mortgage growth is running at around 4%, and Westpac's business lending book is lower than it was in 2008, while still retaining its market share.
Mr Maxted also said that the bank was not seeing any demand from the real economy, despite the wall of money flooding into the market, supporting many pundits' views that the rise of the banks' share prices had become disconnected from reality.
While the S&P ASX 200 index (Index: ^AXJO) (ASX: XJO) had risen 11% over the past three months, Westpac shares were up 18%, National Australia Bank (ASX: NAB) 26%, Commonwealth Bank (ASX: CBA) 13% and ANZ Bank (ASX: ANZ) up 15%.
And the Wall Street Journal reports that just the Commonwealth Bank by itself, with a market cap of more than $100 billion, is now worth more than Germany's entire banking system, according to the Datastream Global Banking Index. Germany's gross domestic product (GDP) stands at around $3.5 trillion, more than double Australia's $1.4 trillion, which suggests the bank is overvalued.
Mr Maxted has warned that if growth does return, the banks might struggle to meet demand for credit because strict regulation was forcing them away from short-term wholesale funding markets and into longer-term debt and deposits, raising the banks' funding costs. Depositors fleeing the banks as they rush into the stock market could make the situation worse, while the dramatic change in banks' balance sheets would likely see them become less profitable.
Foolish takeaway
Bank shareholders chasing the dividend yield (fully franked) from the banks could quite easily see a double whammy of banks shares falling more than the value of their dividends, as well as cuts to those cherished dividends.
The Australian Financial Review says "good quality Australian shares that have a long history of paying dividends are a real alternative to a term deposit." Get "3 Stocks for the Great Dividend Boom" in our special FREE report. Click here now to find out the names, stock symbols, and full research for our three favourite income ideas, all completely free!
More reading
The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned.
