All ASX shares have had a rough trot (as my grandfather used to say) over the past month. The S&P/ASX 200 Index (ASX: XJO) has lost around 30% of its value from its mid-February peak to today. This bear market has been indiscriminate and all shares, large and small, have been punished.
But the 'big four' ASX banks have been particularly harshly hit.
The best performer has been Commonwealth Bank of Australia (ASX: CBA). CBA shares are down 34.4% since its 52-week high of $91.05 that was reached on Valentine's Day. It's the lowest share price CommBank has had since December 2012.
But things look a lot uglier for Commonwealth Bank's compatriots.
Westpac Banking Corp (ASX: WBC) shares are down 38.1% since mid-February. Today, one Westpac share will set you back just $15.98. It's the lowest share price Westpac (aside from last week) has commanded since the depths of the GFC – and before that, August 2004.
National Australia Bank Ltd (ASX: NAB) isn't doing any better. It's down 41.1% over the past month and is also at unprecedented lows – plumbing below the depths of the GFC.
Australia and New Zealand Banking Group (ASX: ANZ) isn't quite at GFC-level lows yet, but it's getting close with today's closing price of $16.45. ANZ shares have lost 39.6% of their value over the past month.
Why are the ASX banks bleeding so heavily?
It seems a disproportionate response on the surface. It's understandable why travel-related shares like Qantas Airways Limited (ASX: QAN) are getting pounded right now. But banks? Why are they exceeding the losses of the broader ASX 200 so decisively?
The banks' profits are going to take a hit in this tough time to be sure, but surely not more than other blue-chips like Wesfarmers Ltd (ASX: WES)…
Well, they probably will, unfortunately.
And in my opinion, it's all to do with interest rates. Accompanying all of these coronavirus-induced economic disruptions have been dramatic monetary easing from the Reserve Bank of Australia (RBA), who reduced interest rates to a new record low of 0.5% this month and look set to follow it up next month with another cut.
Quantitative easing, once thought far-fetched for Australia, is now being floated as a live option too.
All of this points to a massive reduction in the banks' abilities to make money. Low interest rates are a double whammy for the banks.
Firstly, it reduces the appeal of keeping money in the bank at all. What's the point if interest rates are at zero? You may as well have it under the bed. This reduces the amount of cash the banks can lend in the first place.
Secondly, the banks' ability to make any real profits on mortgage rates under 2% and other loans are very compromised – from inflation if nothing else. And 2% mortgages are on the horizon if the cash rate goes to 0.25% or zero.
Foolish takeaway
It's this new reality that the ASX banks are facing that is driving their share prices so low. Until interest rates rise again, I don't expect too much changing in this space either.
