Shares of National Australia Bank Ltd. (ASX: NAB), Westpac Banking Group (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) have fallen hard over the past year.
Together with Commonwealth Bank of Australia (ASX: CBA), these time-tested stalwarts of the Australian share market have consistently produced enviable returns for shareholders. Therefore, some investors are likely asking themselves if now is the right time to build a position in big bank shares.
Headwinds ahoy
The slowing economy is the most likely reason bank shares have fallen sharply over the past 12 months. Indeed, a winding-down of the mining boom has led some investors to believe the ripple effects will filter through to the broader economy.
And when the potential for slowing credit markets combines with historically low bad debt charges, unsustainable growth in property markets and regulatory change, it is never going to end well for bank shareholders.
Unfortunately, with the mining sector still slowing down, competition in credit markets growing, and APRA likely to toughen bank capital rules, it's possible the major banks will conduct more capital raisings in 2016 or beyond.
Foolish takeaway
Over the past 20 years, Australia's major banks have proven their doubters wrong. Over the period, however, we haven't experienced a recession and the mining boom has provided a very reliable flow of funds into our capital markets. That capital is now leaving at a time when, in my opinion, the banks are more vulnerable.
So if you're overexposed to Australia's banking sector, I'd say now may be a good time to look elsewhere for market-beating investment returns.
