What does COVID-19 mean for ASX 200 bank shares in 2020?

While Aussie shares are volatile at the moment, what could the coronavirus pandemic mean for ASX 200 banking shares in 2020?

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The big 4 ASX 200 bank shares have been all over the place in March. The Commonwealth Bank of Australia (ASX: CBA) share price has gone from 52-week high to 52-week low in the space of roughly 1 month.

The Aussie banks are starting to mobilise in line with the government and the Reserve Bank of Australia (RBA) to soften the economic impact of the coronavirus pandemic. But what does that all mean for the ASX banking shares right now?

What's happening with ASX banking shares?

I think we'll see more volatility in the likes of National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).

NAB shares surged 7.48% higher on Friday but have still seen steep losses this month. Similarly, the Westpac share price climbed 8.53% to $15.77 per share at Friday's close, but that's just under half of what it was valued at in September 2019.

ASX banking shares are hard to value right now for a number of reasons. The first is the COVID-19 pandemic, which is set to ramp up in coming weeks. We've already seen the immediate impact on ASX travel shares, as well as the entertainment and hospitality sectors. 

However, I think we could see more indirect industries start to be heavily traded on the ASX. We're already seeing that with Aussie supermarket shares but I think the impact could go even further. Given the banks are heavily involved in business lending, any remedial actions will likely have an impact on its current share price.

While a recession may be on its way, the key for the banks is asset quality. If we see major defaults across residential and commercial loans, then ASX banking shares could be under pressure.

The second thing that we're seeing is the impact of the recent RBA rate cuts. Lower rates do provide relief to borrowers, but also squeeze profit margins. That could put the NAB and Westpac earnings under pressure when they report in early May.

Foolish takeaway

ASX banking shares are worth keeping a close eye on in March. There are so many uncertainties right now, but heavily selling can be disproportionate in times of panic. 

Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. 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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