The National Australia Bank Ltd (ASX: NAB) share price gave back its morning gains and tumbled lower with the rest of the big four on Tuesday.
This followed the Reserve Bank's decision to cut the cash rate down to a record low 0.5%.
Why did its shares drop lower?
Investors were selling the banks due to concerns over the impact that this cut will have on their net interest margins (NIMs).
According to a note out of Goldman Sachs, its analysts, which expect another rate cut to 0.25% in April, have now forecast sector NIMs to be down 7 basis points in FY 2020 and then a further 8 basis points in FY 2021.
This has ultimately led to the broker downgrading its earnings per share expectations for the big four banks meaningfully over the next few years.
It has reduced its cash earnings per share forecast for Australia and New Zealand Banking Group (ASX: ANZ) by 2.3% in FY 2020 and 3.5% in FY 2021.
Commonwealth Bank of Australia (ASX: CBA) cash earnings per share have been downgraded by 0.8% and then 2.4%.
NAB's cash earnings per share forecasts for the next two years have been reduced by 2.4% and 3.4%, respectively.
And finally, Westpac Banking Corp (ASX: WBC) has had its cash earnings forecasts downgraded by 2.5% and 3.2%.
Are any of the banks in the buy zone?
Despite having its forecasts downgraded, NAB remains on Goldman Sachs' conviction buy list, albeit with a lowered price target of $28.80.
Goldman explained: "We continue to prefer NAB (Buy on CL), given we think its superior-to-peer PPOP trajectory is not reflected in current prices (-16% PER discount to peers, vs. -8% historical average). However, we concede that if the economic impacts of the coronavirus outbreak continue to play out to the downside, NAB's overweight SME exposure would leave it adversely exposed to both lower commercial volume growth and higher BDDs."
The broker has neutral ratings on ANZ and Westpac, and retains its sell rating on CBA's shares.
