As one of the 'Big Four' banks, as well as being the fifth largest company in the country, Australia and New Zealand Banking Group (ASX: ANZ) has a huge weighting on the ASX 200 index. It is safe to say that the ANZ share price's 8.4% decline in March so far has helped weigh on the overall share market performance for the month (down over 2% in the same period).
ANZ started the month trading around the $28 mark but at the time of writing has collapsed to under $25.70.
So, what has caused ANZ's rather steep monthly decline?
ANZ, like the other banks, is closely integrated into the broader economy as a credit provider. Therefore, the banks' operational profits are highly dependent on macroeconomic trends such as consumer and business confidence, wage growth and property prices. No matter who you ask, none of these trends seem to be in positive territory. Slow wage growth has become a burning political issue and housing prices have been experiencing their biggest falls since the GFC, particularly in our capital cities. All of these factors have dampened Australia's economic outlook and this has been, in my opinion, the aggravating factor behind the slump in ANZ's share price crash.
ANZ is particularly sensitive to economic conditions because, unlike the Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC), ANZ has a higher exposure to business credit loans. Between 2015 and 2018, the bank provided approximately $52 billion in home lending credit, but during the same period, lent over $95 billion in business credit. Its share of the Australian mortgage market (owner-occupier) sits at 16%, whereas Westpac has around 24%. This shows ANZ's focus has been on business banking, which gives the company less exposure to any further slump in property prices.
Nevertheless, even ANZ's slightly more diversified business model still leaves it exposed to a sluggish Australian economy and this has been felt by investors over March.
Foolish takeaway
ANZ is trading on a P/E ratio of 10.99 and is yielding a dividend of 6.21% before franking. I think on these levels, ANZ is still a good income stock to own but investors looking for downside protection should consider looking elsewhere.
