With the Federal Budget being handed down on Tuesday night, and looming uncertainty about Australia's economy, I've seen a lot of coverage about whether ASX bank shares are a buy right now.
While the big four banks Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) might have what it takes to ride the wave of economic uncertainty, it's the smaller banks that have me curious and a bit worried.
How has the Bendigo and Adelaide Bank share price performed in 2019?
Year to date, the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has declined by 8.5%. A large part of this decline came from it's high for the year to date of $11.33. This was driven by changes to the bank's reverse mortgage product, Homesafe, in February.
Bendigo and Adelaide Bank's Homesafe product allows homeowners to dip into their home equity without losing their home.
In the six months to December 2018, Homesafe had a revaluation that poorly affected the bank's statutory profit to the tune of $5.4 million. Compared to the positive contribution of $39.6 million from Homesafe for the six months to June 2018, things aren't looking good for the bank's Homesafe portfolio.
At the time of writing, the Bendigo and Adelaide Bank share price is trading at $9.88.
What do brokers think of Bendigo and Adelaide Bank?
Many brokers including Morgan Stanley, Deutsche Bank, Credit Suisse, and Ord Minnett all agree there are challenging times ahead for the regional bank. Upon the release of Bendigo and Adelaide Bank's half-yearly earnings in February, these brokers all cited interest margin pressure and the risks of Homesafe as big risk factors.
On a positive note, the bank had an 18% increase in new customers in the first half of the financial year while customer turnover was flat. This is good news for the bank, but still not enough to warrant buying Bendigo and Adelaide Bank shares at this time.
With the level of uncertainty in Australia's housing market and broader economy continuing, I'd be steering clear of banking shares right now and focusing on recession-proofing my portfolio with utilities and healthcare stocks.
Looking for high-growth stocks to add to your portfolio? This stock is at the cusp of what could be the next booming industry in Australia.