Commonwealth Bank of Australia (ASX: CBA) is again dragging the local share market lower today with the shares falling 1.3% to $74.60.
Rival banks aren't providing any support either with National Australia Bank Ltd. (ASX: NAB) and Westpac Banking Corp (ASX: WBC) down 0.6% and 1.3% respectively. Australia and New Zealand Banking Group (ASX: ANZ) has bucked the trend, rising 0.4%.
Indeed, the banks have played a key role in the market's heavy volatility recently with the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) slipping 5.6% since late October. It's down 0.5% today alone at 5092 points and could threaten to fall below its late-September low of 4918 points in the near future if the banks continue to underperform.
There are a number of reasons why the banks have lost favour with investors. To begin with, the banks have collectively reported record earnings results in recent years. Although that growth continued in the 2015 financial year (FY15), it was at a far slower pace with tighter margins and intensified competition, suggesting growth will become more difficult to come by, if at all.
At the same time, the banks are also facing tougher regulations which threaten to slow loan growth, restrict returns on equity, or ROE (which have typically remained far stronger than international banks), and could even impact their ability to maintain or grow dividends. The banks' fully franked dividends are one of the primary reasons many investors own their shares, so if they come under pressure, so too will the shares themselves.
Speaking of dividends, there's a chance investors are also cooling on the banks in light of recent comments from the Reserve Bank of Australia. The shares rose on heightened expectations there would be another official interest rate cut in the near future, but those hopes have been dashed somewhat by Glenn Stevens – the RBA's chairman – who seemed more upbeat about the local economy when he last addressed the market.
Although the banks have fallen in share price, I still don't think they're trading at attractive enough levels today to warrant a new investment. In my opinion, investors would be far better off focusing their attention on other high-yielding dividend stocks instead.
