Australia's big four ASX bank shares have received a lot of negative publicity recently, especially in light of recent banking scandals.
So, do the shares of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), and Australia and New Zealand Banking Group (ASX: ANZ) offer any value to investors right now?
Pros to the big four ASX banks
The big four banks take 4 of the top 6 positions with regards to the largest companies on the ASX by market capitalisation right now.
On the positive side, due to their large size, the big 4 banks have deep pockets and market scale to ride out troubled times such as the ASX correction we're experiencing now. In addition, their large market capitalisations mean that the big 4 are frequently bought by superannuation funds and index funds.
What's more, the big 4 Aussie banks remain highly profitable organisations and will benefit from Australia's growing population and expanding residential housing sector over the next decade.
Low interest rate environment proves challenging
On the negative side, however, the Australian banking sector has definitely become more challenging recently due to our very low interest rate environment. Low rates mean the margins that banks can get from housing loans and banking accounts have been reduced, which then flows through to reduced profits.
It looks like this ultra-low interest rate environment will be here to stay for some time. Interest rates may stay low for as long as five to ten years, which will be a real challenge for the big 4 banks.
Increasing dividend yield in the ASX correction
However, there is a flip side to our low-rate environment. With very low interest rates, investors will continue to look beyond savings accounts and term deposits, which are now producing returns on average well below 2%.
You only have to look at the current yields of the ASX bank shares, which appear even more attractive due to corrections in their share prices. As a company's share price drops, its dividend yield increases.
With a share price of $70.72 at the time of writing, Commonwealth Bank shares are currently offering a trailing dividend yield of 6.09%. When you take into consideration franking credits, this yield is equivalent to a grossed-up return of 8.70%.
The other big 4 banks are trading on even better dividend yields right now with NAB currently offering 8.25% (11.78% grossed-up), Westpac offering 8.72% (12.45% grossed-up), and ANZ offering 7.85% (11.21% grossed-up).
Foolish takeaway
I think it is good to have some exposure to the ASX banking sector, but not too much. One of the biggest mistakes that some investors and retirees with self-managed super funds make is to gain too much exposure to bank shares as they are familiar with these types of shares.
However, with recent corrections to their share prices, I think all of the big 4 banks are offering reasonable value to investors right now. My current top pick of the bunch is Westpac which is currently offering a 12% grossed-up dividend yield.
