Is the Commonwealth Bank of Australia (ASX: CBA) share price about to face a $3 billion hit?
The big ASX banks of Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) have already announced hundreds of millions of dollars of bad debt provisions for what may happen over the coming months.
As the biggest bank of them all, CBA may face the most pain, in absolute terms at least.
Next week the major ASX bank is scheduled to deliver its third quarter update to the market. The AFR is reporting that the bank may provide commentary about bad debt provisions in the update.
CBA could say that bad debt provisions for the entire FY20 could amount to $3 billion or more due to the coronavirus. Clearly the market is expecting something of a big profit hit. It's why the CBA share price is down around 33% since the share market selloff started.
Many analysts and economists have already said that this is going to be more painful for Australia's economy that the GFC. Time will tell how tough it is for CBA.
Could the CBA share price be supported by a dividend?
A lot of retiree investors hold the banks for dividends. If CBA's dividend is better than expected it may give the share price support during this difficult time. Plenty of other dividend shares like Westpac, ANZ and Sydney Airport Holdings Pty Ltd (ASX: SYD) have deferred or cancelled their dividends altogether.
CBA came into this period in a stronger position than the other three major banks. Its dividend may be able to hold up better. But I fully expect a dividend cut, particularly because APRA wants the banks to cut and the Reserve Bank of New Zealand (RBNZ) has banned dividends from Kiwi banks. That quarantines the profit in New Zealand for the time being.
Foolish takeaway
At around $60 the CBA share price is nowhere near the lows seen during the GFC. Whereas other ASX banks are trading at around those GFC lows. CBA would be my pick of the four majors, but it's not at mega cheap prices. I think there are plenty of other dividend shares that offer better value and better income potential.
