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ASX banks to face further headwinds in 2020

It’s no secret that 2019 was not the best year to be a shareholder in the big four ASX banks. Between scandals, fines, capital raisings and dividend cuts – it was probably a year most of us who have ASX bank shares in our portfolios would rather forget.

If we go back exactly a year, National Australia Bank Ltd (ASX: NAB) shareholders were expecting dividends of $1.98 per share for the year. Westpac Banking Corp (ASX: WBC) shareholders would have been hoping that their $1.88 per share payouts would be continuing, whilst I’m sure Australia and New Zealand Banking Group (ASX: ANZ) owners would not have been anticipating their shares going from fully franked to 70% franked.

Yet as we look back from January 2020, NAB shareholders are now hoping their new payouts of $1.86 per share will even hold up this year. Ditto with Westpac’s ‘new normal’ of $1.60 per share payouts and ANZ’s still-unchanged-but-less-franked dividend.

Even Commonwealth Bank of Australia (ASX: CBA) shareholders – who mercifully came out of 2019 with their dividends intact – wouldn’t be feeling too far out from the woods just yet.

On top of predictions that interest rates could be lowered even further this year (which squeezes banking profitability), things were already looking precarious for the banks as we start 2020.

But according to reporting in the Australian Financial Review (AFR), conditions may get a whole lot worse for the big banks.

The AFR quotes ratings agency Standard & Poor’s (S&P) as predicting that the calamitous and destructive bushfire season will likely lead to increased mortgage arrears as well as increased financial hardship for businesses and households in affected areas. In the article, S&P states:

Following a natural peril event, housing prices might drop and the ability to sell property could be adversely affected should the area be deemed less desirable or of higher risk to buyers, as occurred after the recent California wildfires and the flooding of the Brisbane River in Queensland in 2011.

The banks have (commendably) offered disaster relief grants, mortgage payment suspensions and other assistance measures to victims of the fires. But these generous offers still unfortunately affect the banks’ bottom lines.

The AFR also quotes Morgan Stanley, which has predicted that the fire season will lead to reduced earnings for the banks of “between 1 per cent and 2 per cent – or about $270 million to $540 million”.

It’s a stark reminder of the unimaginable costs the victims of these horrendous fires face – as well as the costs that all Australian individuals and businesses are shouldering in response.

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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank 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.

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