The S&P/ASX 200 (Indexasx: XJO) (ASX: XJO) has dropped 0.8% in late afternoon trading, driven by the falls in BHP Billiton Limited (ASX: BHP) and the big four banks, who are getting walloped.
Australia and New Zealand Banking Group (ASX: ANZ) has fallen the heaviest, down 2.4%, Commonwealth Bank of Australia (ASX: CBA) has lost 1.8% to $83.23, while National Australia Bank (ASX: NAB) and Westpac Banking Corp (ASX: WBC) have dropped 0.8% and 2.1% respectively.
Here are 3 likely reasons the banks are being sold off…
- The Australian Securities and Investments Commission's (ASIC) Greg Medcraft has told the Australian Financial Review (AFR), "I am quite worried about the Sydney and Melbourne property markets. In housing, the long-term average income to average price ratio is 4 to 5 times, but at the moment it is at historic levels."
Should the property price bubble deflate, banks are heavily exposed through mortgages, not to mention other personal lending through loans and credit cards.
- The federal government is likely to limit the ability of self-managed super funds (SMSF) to borrow to invest in property. The AFR reports that the government won't follow a Financial System Inquiry recommendation of banning it altogether, but it will still negatively impact on bank credit growth.
- New Zealand is also battling a property boom and just yesterday announced it will combat it by imposing high capital gains taxes on investment properties bought and sold within 2 years, excluding the family home. The country's central bank has also imposed higher deposit requirements on property investors in Auckland, which is at the centre of huge property price gains.
With Australian interest rates already low and potentially heading lower, our regulators and the RBA may also be forced into measures restricting investment loans and crimping bank credit growth. Low credit growth means it will be tough for the banks to grow dividends – and many investors have dived into the banks for their fully franked dividend yields.
You can add to that list that Aussie banks, particularly the big four are expensive on almost every valuation measure, and investors may be selling out before they fall back to more reasonable levels. At cheaper prices, we may become much more interested in the banks.
