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Is the CBA share price a buy?

Is the Commonwealth Bank of Australia (ASX: CBA) share price a buy after APRA’s announcement?

Some investors seem to think so with the country’s largest bank seeing a 1.2% rise of its share price yesterday.

It appears that the government is patting itself on the back on a job well done, it has overseen a fall in the house prices in Sydney and Melbourne whilst continuing to grow the economy.

The banks were being too risky with their lending and now they have been given the green light to start lending to investors again. Some might say this could be just pushing the problem under the carpet for another time if the banks don’t maintain their current scrutiny of income and expenses of potential borrowers.

Commonwealth Bank was seeing rising customer arrears even before the Royal Commission started. Lending may have severely tightened this year, but many of the other issues hurting house prices that some commentators have been alluding to remain: Very high debt levels, rising interest rates, lower levels of foreign buying, low wage growth and the high amount of interest-only loans transitioning to principal & interest repayments.

It’s likely that Commonwealth Bank, Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) will experience improving investor sentiment in the short-term, but it could be a while before they’re out of the woods completely.

We are yet to hear of any recommendations from the Royal Commission, there could be some more bad news to come.

APRA had limited the banks to interest-only loans to 30% of total loans, whilst investor loan growth had to be under 10%. Banks were nowhere near these limits in recent months. I didn’t think those limits were exactly ultra heavy handed either.

Commonwealth Bank currently has a grossed-up dividend yield of 8.9%. For my own portfolio, I do not believe the income potential outweighs the risks yet, there’s nothing wrong with being patient. I’d rather look elsewhere for market-beating returns right now.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of National Australia Bank Limited. 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 Scott Phillips.

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