Why the National Australia Bank Ltd. share price just sunk below $30

Credit: NAB

The National Australia Bank Ltd. (ASX: NAB) share price sunk below $30 today, as the S&P/ASX 200 (Index: ^AXJO) (ASX: XJO) continued to grind lower.

With its share price falling 1.83%, Australia’s largest business bank has been unable to keep the momentum rolling. But it’s easy to see why.

Against the backdrop of falling commodity prices, Australia’s resources sector is placing both direct (e.g. through reduced credit requirements, investment flows, etc.) and indirect (increasing unemployment, slower wage growth, etc.) pressure on the broader economy.

Indeed, when NAB announced its 2015 full-year results it said, “Weakness in national income reflects lower commodity prices which have caused a decline in the terms of trade.” It added, “The outlook for domestic spending growth is subdued and is unlikely to significantly improve.” In recent months, we’ve seen evidence that house prices are likely slowing.

Slowing house price growth is the biggest threat to the major banks’ balance sheets. Unfortunately, the potential for a slowdown in the housing sector comes as Australia struggles to transition away from the resources sector and maintain adequate growth.

Together with increasing bank regulation, caps on investor loans, higher risk weightings, growing competition, and the likelihood of more capital raisings; each of the big four banks may have to wave goodbye to the days of market-thumping share price returns.

Buy, Hold or Sell?

Despite management’s best efforts, NAB’s share price may not be able to stage any meaningful and sustainable recovery in the medium-term (one to three years). Therefore, I think now is a better time than any to ensure your portfolio is not overexposed to the banking sector and the Australian economy.

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Motley Fool writer/analyst Owen Raszkiewicz has no position in any stocks mentioned.

Owen welcomes your feedback on Google plus (see below), LinkedIn or you can follow him on Twitter @ASXinvest.

Unless otherwise noted, the author does not have a position in any stocks mentioned by the author in the comments below. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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