There are a number of different metrics one can look at when considering the banks.
Sadly, people seem to put the dividend yield first before anything else when looking at the banks. Dividends are certainly not guaranteed, as we've seen from Telstra Corporation Ltd (ASX: TLS) and now National Australia Bank Ltd (ASX: NAB).
However, one thing really stuck out to me from the NAB and Australia and New Zealand Banking Group (ASX: ANZ). It was the rising amount of Australian mortgages that are/have been in arrears for more than 90 days. Not just one day or 30 days in arrears, but more than 90 days.
The decline in Sydney and Melbourne house prices both register more than 10% over the past year. So far the drop has been orderly. It's 'fire sales' that cause sharp declines in assets like house prices or shares.
Low interest rates and the prior strong run up of house prices mean most households are still in a good position. But the worse arrears become the more people are forced into selling.
Of course, this is by no means a certain thing. However, the possibility of a more negative outcome is rising as more property owners become financially distressed. Make no mistake, we would all be worse off if an Australian recession happened, so it's not a wise idea to wish for that outcome. Even though I'm saving to buy a house I wouldn't want a crash.
Banks like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) would see a big rise in bad debts if that happened.
Foolish takeaway
Hopefully the house price declines continue their gradual descent until a reasonable price is reached and then everything gets better from there (but not a return of rapid gains).
There is a good chance nothing truly bad will happen at all, which is normally the case. Even so, the banks are staying out of my portfolio for a long time to come. But, I am going to keep investing in other ASX shares.
