ASX bank shares have been tumbling lower in 2020, but could they be back in the buy zone?
Why are ASX bank shares trading cheaply today?
The biggest factor hammering the S&P/ASX 200 Index (ASX: XJO) lower in 2020 is the coronavirus pandemic. COVID-19 has brought the global economy to a standstill as borders have shutdown and people have been forced indoors.
But the Aussie banks have been hit particularly hard this year. In fact, ASX banking shares are underperforming the benchmark index by some margin as loan impairments rise and dividends are slashed.
Initially, APRA was putting pressure on the banks to conserve cash in the current environment. However, investors are now wondering if earnings could suffer and dividends could continue to fall due to lower profits as well.
Is it a good time to buy?
All of these headwinds have spooked investors into selling off the banks in droves. However, the fact is that the ASX bank shares like Commonwealth Bank of Australia (ASX: CBA) remain a pillar of the Aussie economy. While there is the rise of neobanks threatening their business model, many Aussie banks are actually backing their own horses in this race.
For instance, National Australia Bank Ltd. (ASX: NAB) is behind UBank while Bendigo and Adelaide Bank Ltd (ASX: BEN) supports Up. This could mean the increasing popularity of neobanks might not be the death sentence for ASX bank shares that many expect.
Furthermore, despite softer earnings, CBA still posted a half-year cash profit of $4.5 billion. COVID-19 will pass and I think we could see Aussie banks continue to pay strong dividends, albeit at lower levels, well into the future.
No one knows where the ASX 200 is headed in 2020. However, I think the ASX bank shares are still high-quality companies with strong earnings potential. This could mean now is a good time to buy your favourite bank’s shares at a discounted price.
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Motley Fool contributor Ken Hall has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. 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.