Is it time to buy the shares of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank Ltd (ASX: NAB)?
All of the big banks have had a very nice 2019 so far, there have been a number of catalysts.
The Royal Commission report was not anywhere near as bad for the big banks as expected, although both NAB's CEO and Chairman have lost their jobs over their performances.
The Liberals won the Federal election in a surprise result.
The Reserve Bank of Australia (RBA) has cut interest rates twice from 1.5% to 1%.
APRA has reduced the interest rate buffer required by borrowers from 7% to the current interest rate on the loan plus 2.5%.
As a bank shareholder, you couldn't really have asked for a better chain of events so far this year. Even Sydney and Melbourne house prices have stopped falling, for now at least.
Unsurprisingly, the big bank share prices have gone up by over 10% since the start of the year, which has had the sad effect of decreasing the starting dividendyields on offer.
Commonwealth Bank has a grossed-up dividend yield of 7.5%.
Westpac has a grossed-up dividend yield of 9.6%.
ANZ has a grossed-up dividend yield of 8.2%.
NAB has a projected grossed-up dividend yield of 8.8%.
However, the APRA wanting the big banks to hold a little more capital so that they can absorb more losses, it's clear the banks aren't going to get back to boom times soon in my opinion.
Are those dividend yields enough to make it worth investing in the big banks for the long-term? I'm not sure they are.
Foolish takeaway
I think the key will be the credit environment over the next few years. If Australian borrowers avoid defaulting heavily on their loans then everything should be okay for the banks. However, I think it's quite easy to foresee a situation where the growing bank arrears worsen if unemployment rises, which could lead to a large increase in bad debts and a big hit to the bank's profits.
