NAB share price falls 5% to multi-year low

The National Australia Bank Ltd (ASX:NAB) share price fell 5.5% today as it hit a multi-year low due to the coronavirus.

Tristan Harrison

Author Bio Tristan Harrison has a decade of experience as an ASX share investment writer and was previously a business, tax and audit accountant for seven years. Tristan has contributed to The Motley Fool since October 2016. He has an advanced diploma from the Association of Accounting Technicians and is currently enrolled in the Chartered Institute of Management Accountants (CIMA) program. Tristan's goal is to help Australians learn about great ASX shares that can help grow their portfolio, wealth and dividends over the long-term. Areas of Expertise ASX dividend shares and passive income strategies ASX growth shares and ETFs Business and company financial analysis Franking credits and personal tax topics Personal finance Education Advanced diploma from the Association of Accounting Technicians Enrolled in the Chartered Institute of Management Accountants (CIMA) program Social Media X/Twitter Favourite Investment Quote "Live within your income and save so that you can invest." — Charlie Munger

Published March 7, 2020 8:15 am AEDT

The share price of National Australia Bank Ltd (ASX: NAB) fell 5.5% on Friday, making it the worst-performing major ASX bank and one of the most painful falls in the ASX 200 (INDEXASX: XJO).

We haven't seen the NAB share price at this level since 2012. There is now concern that bank bad debts could rise because of the effects of the coronavirus, particularly because lots of small and medium businesses are seeing a hit to their cashflow.

NAB head of business banking Anthony Healy said to the AFR that COVID-19 "is already disrupting trade flows, and tourism numbers – which means less demand for accommodation, food and beverages." He also said that NAB is "already talking to our customers about the help we can offer them, such as deferring business loan repayments for up to three months or restructuring their loans."

The problem for NAB, and all the banks, is that it's expected to be lenient with borrowers and that they don't force fire sales which could turn into bigger problems.

NAB's net interest margin (NIM) will go lower after the bank passed on the full RBA rate cut to borrowers. NAB's cash deposit interest rates can't be lowered than 0%, so the rate cut is a net negative for NAB.

Expectations are that bad debts for banks like NAB will increase because of the economic effects of the coronavirus which is hurting travel businesses, logistics and other industries that rely on exports.

NAB is known to be more of a business bank than Commonwealth Bank of Australia (ASX: CBA) or Westpac Banking Corp (ASX: WBC), so it's not surprising that investors are more concerned about NAB (and Australia and New Zealand Banking Group (ASX: ANZ)), sending their share prices down harder than the larger two banks.

Foolish takeaway

If NAB's earnings drop then the dividend could be in danger (again). I wouldn't want to buy NAB for the dividend today. NAB is cheaper than it has been for most of the past decade, with an impressive new leadership team, but I'm not convinced it's the right business to go for when there could still be a lot more pain to come.

Automatic Renewal

By taking up this offer, you will also be enrolled in our auto-renewal program, which is our way of making your ongoing subscription easier by ensuring uninterrupted service. Don't worry, though – you're not locked in, and can cancel your auto-renewal at any time before each 'anniversary' date without question or penalty.