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Is time to buy the big 4 ASX banks?

Is it time to buy the shares of the big four ASX banks?

Investors today certainly seemed to think so. It was perhaps the best day for banks since the recovery from the GFC, maybe the best ever considering the ASX ‘only’ went up 1.76% today.

The Commonwealth Bank of Australia (ASX: CBA) share price went up 4.5%.

The Westpac Banking Corp (ASX: WBC) share price gained 7.4%.

The Australia and New Zealand Banking Group (ASX: ANZ) share price increased 6.4%.

The National Australia Bank Ltd (ASX: NAB) share price rose 3.8%.

Some have said that mortgage brokers such as Mortgage Choice Limited (ASX: MOC) are paying the price for the misdeeds of the major banks. Mortgage brokers may broker almost 60% of loans, but the big four banks are responsible for an even higher percentage of loans written. We’ll see if they end up losing trail commissions.

One of the key factors that may have saved the big banks from additional regulations are that they are “too big to fail”, they are essential for the flow of credit and that housing prices are already falling significantly.

If banks had to strengthen their lending standards even more than they already are then potential borrowers may have found it even more difficult to get a loan.

Are the big ASX banks buys?

I certainly believe that their prospects have improved compared to last week. If the importance of mortgage brokers is reduced with the removal of commissions and/or the user has to pay for the upfront fees then that could give the major banks even more power. It could mean the big banks can charge slightly higher interest rates.

It seems to me that, overall, the big banks are beneficiaries from the Royal Commission due to the changes facing competitors and intermediaries.

However, in my opinion that does not mean that the big banks’ profits are suddenly going to start rising by 5% or more a year because of these reasons:

  • House prices are still falling
  • Customer remediation is still ongoing
  • Class actions are still being formed
  • Politicians will want to prove they are taking action, so it could be a “who can punish the banks” competition leading up to the election
  • Tighter lending standards remain, enforced by APRA, ASIC and the new body
  • Banks are required to hold more capital to be unquestionably safe

Foolish takeaway

I wouldn’t call any of the banks buys until we see house prices stabilise for a sustained period. As long as they keep falling there’s a danger of rising bad debts for the banks.

However, if I had to order the banks it would be NAB for the largest dividend yield, Westpac, CBA then ANZ.

But as far as I’m concerned, if you’re looking for dividends then I’d rather go for these great ASX income shares.

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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.

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