There could be a new challenger to Commonwealth Bank of Australia (ASX: CBA), Australia and New Zealand Banking Group (ASX: ANZ), Westpac Banking Group (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) in the shape of a Chinese online invader.
According to the AFR, Chinese digital-only bank WeBank is getting closer to setting up in Australia. It made a number of trademark applications in December 2018, including Chinese characters that can be translated into English meaning “microloan”.
In China, WeBank is a popular digital bank providing payment services on WeChat, it also provides personal loans and savings accounts.
WeBank is 30% owned by Tencent, the internet giant which is somewhat similar to Facebook but with a much wider of services including a focus on games.
Should the big banks be worried? Well it depends how successful WeBank is. Its operating model of online-only means it doesn’t have the expensive branch networks or all the staff that it takes to operate them. That’s one of the main reasons why NAB is looking to cut its workforce by 6,000.
WeBank supposedly has a net interest margin (NIM) of 7% in China, so that shows its operating model can be very profitable.
The outlook of the major banks looks a bit tougher with potential new regulations coming from the Royal Commission which could make credit growth even harder, particularly with housing prices falling.
All the big banks have big dividend yields but the near-term growth prospects don’t look as attractive as they did a few years ago. They appear cheap compared to their previous earnings, but those earnings could swiftly go downwards. I’d rather go for businesses that are growing regardless of what’s going on with the overall economy.
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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.