This morning we learned that Westpac Banking Corp (ASX: WBC) was cutting its final dividend to shareholders by 15% from $0.94 per share to $0.80 per share.
Australia and New Zealand Banking Group (ASX: ANZ) gave retiree shareholders an income cut with a reduction of its franking credits amount recently and National Australia Bank Ltd (ASX: NAB) cut its dividend earlier this year. Indeed, it's extremely likely that NAB will cut its final dividend.
The only bank that didn't cut shareholder income was Commonwealth Bank of Australia (ASX: CBA) which maintained the FY19 dividend at $4.31 per share.
Westpac's report included a number of troubling factors including lower profit, a lower net interest margin (NIM) of 2.12% and a rise of Australian mortgage 90+ day delinquencies. All the banks are facing these issues.
With all of those negative factors the main thing giving the big banks any hope of growth is system credit growth, which Westpac thinks will be 3% in 2020 with housing lending growth of 3.5%.
As I've written dozens of times in recent years, a dividend can only grow if earnings are sustainably growing. Rising loan arrears suggests that bad debts are more likely to go up rather than down.
There is so much more competition out there for the banks. 'Neobanks', online-only lenders, comparison sites, mortgage brokers and so on. Plus, big tech businesses want some of those juicy bank earnings. That's not to mention the huge issue of record low interest rates.
How can investors trust that the dividends won't go lower if earnings stumble further? The big banks need to keep capital levels high for APRA and Reserve Bank of New Zealand (RBNZ) requirements.
Foolish takeaway
Out of the big four, it seems Commonwealth Bank has the most reliable dividend. But I don't own shares of any of the big four banks directly, I don't think there's much growth potential over the medium-term. The dividend yields aren't that good and the dividends keep getting cut.
