The Motley Fool

Is the ASX banking sector going to cause the next crash?

Is it possible that the ASX banking sector is going to cause the next crash?

One could argue that the actions 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) have already caused a bit of a downturn.

Their relaxed lending in the early 2010s saw house prices rise significantly and the subsequent royal commission put a dampener on many discretionary businesses on the ASX like Nick Scali Limited (ASX: NCK) and Flight Centre Travel Group Ltd (ASX: FLT).

But there is still concern that the over indebtedness of many Australian households could cause issues down the line. Just because Armageddon doesn’t happen (or ever happens), doesn’t mean the underlying situation has improved.

Just look at Westpac’s mortgage delinquencies. At March 2019 its 30+ day delinquencies had increased to 1.59% from 1.44% at March 2018. The 90+ day delinquencies have gone from 0.69% at March 2018 to 0.72% at September 2018 and 0.82% at March 2019. Most banks are seeing a rising trend.

When will this trend stop? If delinquencies reaches a certain level it could be a disaster for banks’ bad debts and the economy as a whole. I’m certainly not predicting another GFC, but the knock-on effect from housing can affect all areas of the economy, like we saw in the USA.

Whilst stress testing a bank is not meant to be a bank’s prediction that things are going to go wrong, it can provide an insight into what might happen if things were to turn bad. Westpac’s latest disclosed mortgage portfolio stress testing showed that a severe recession would send unemployment over 10% with house prices dropping by 35% and cumulative losses of around $5 billion, wiping out its profit, although Westpac would survive.

Foolish takeaway

With such large assets and liabilities, I think banks are riskier than some people think. It can take years for poor lending to show up. That’s why I don’t want to ever invest in ASX banks. Why take the risk when that once-in-a-generation event can happen?

However, regardless of what happens, I’d want to put my money into these top ASX dividend shares.

Top 3 ASX Dividend Stocks For 2019

With interest rates likely to stay at rock bottom for months (or YEARS) to come, income-minded investors have nowhere to turn... except dividend shares. That’s why The Motley Fool’s top analysts have just prepared a brand-new report, laying out their top 3 dividend bets for 2019.

Hint: These are 3 shares you’ve probably never come across before.

They’re not the banks. Not Woolies or Wesfarmers or any of the “usual suspects.”

We think these 3 shares offer solid growth prospects over the next 12 months. The first two currently offer fat, fully franked yields. The last is a surprising REIT offering you the benefits of being a landlord with none of the hassle! You’ll discover all three names and codes in "The Motley Fool’s Top 3 Dividend Shares for 2019."

Even better, your copy is free when you click the link below. Fair warning: This report is brand new and may not be available forever. Click the link below to be among the first investors to get access to this timely, important new research!

The names of these top 3 dividend bets are all included. But you will have to hurry. Depending on demand – and how quickly the share prices of these companies move – we may be forced to remove this report.

Click here to claim your free copy right now!

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Flight Centre Travel Group Limited. 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.

NEW. Five Cheap and Good Stocks to Buy in 2019…

Our Motley Fool experts have just released a brand new FREE report, detailing 5 dirt cheap shares that you can buy today.

One stock is an Australian internet darling with a rock solid reputation and an exciting new business line that promises years (or even decades) of growth… while trading at an ultra-low price…

Another is a diversified conglomerate trading near a 52-week low all while offering a 2.8% fully franked yield…

Plus 3 more cheap bets that could position you to profit over the next 12 months!

See for yourself now. Simply click the link below to scoop up your FREE copy and discover all 5 shares. But you will want to hurry – this free report is available for a brief time only.

CLICK HERE FOR YOUR FREE REPORT!