ASX bank dividends are no longer the reliable source of income they once were and won't be again for some time. This week, 2 of the 4 big banks have slashed or deferred dividends in the face of the coronavirus pandemic.
The banks are staring into a void of uncertainty regarding the extent of the economic impacts of the virus. Certainty around dividends is unlikely until certainty around economic impacts on banks' businesses can be achieved.
NAB slashes dividend
On Monday, National Australia Bank Ltd (ASX: NAB) slashed its interim dividend to 30 cents per share, down from 83 cents last year. Cash earnings fell 24.6% compared to H1 FY19, driven by higher credit impairment charges and mark-to-market losses. Credit impairment charges increased 158.6% to $1,161 million, of which $807 million reflect potential COVID-19 impacts.
NAB's result was materially impacted by the coronavirus pandemic. Given the uncertain outlook, NAB chose to proactively strengthen its balance sheet with a $3.5 billion capital raising. NAB has the largest exposure to small and medium businesses of the big 4 banks, so will be more affected by the closure of hotels, cafes, and small retailers.
Westpac flags $2.2 billion impairment charge
On Tuesday, Westpac Banking Corp (ASX: WBC) announced $2,238 million in impairment charges are expected in its first half. This includes $1.6 billion of impairment charges related to COVID-19 impacts.
Westpac's higher impairment charges have been driven by changes to economic forecasts linked to the pandemic. These include lower economic growth, higher unemployment, lower investment and a fall in residential and commercial property prices. Westpac is expected to announce its dividend decision next week when it reports its half-year results.
ANZ profits tumble
Yesterday, Australia and New Zealand Banking Group Ltd (ASX: ANZ) announced profits had fallen by 51%. The cause was a significant uplift in credit provision charges related to the changed economic environment. Credit impairment charges of $1.67 billion were incurred for the half year. These included increased credit reserves for COVID-19 impacts of over $1 billion.
ANZ saw earnings per share fall 60% from 124.8 cents in H1 FY19 to 49.9 cents in H1 FY20. The board chose to defer its decision on the 2020 interim dividend until greater clarity emerges regarding the economic impact of COVID-19.
Foolish takeaway
Yield-hungry investors are facing the prospect of going without the $20 billion in annual income they have come to expect from the Big 4. Bank dividends are likely to remain constrained until the true cost of the coronavirus pandemic becomes clear.
