This year, ASX bank shares like Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC) have found themselves in the spotlight. And not in a good way (as is usually the case).
The coronavirus pandemic and associated economic shutdowns have reminded us all of the banks' vital role in the economy. Credit and credit growth are both functions of economic growth and work in a self-reinforcing pattern. If people have more money (or at least feel like they do), they are more inclined to borrow from credit providers like the banks. And the more money that is borrowed, the more people feel wealthy — and on and on the cycle goes.
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A horrible year for ASX bank shares
But of course, this works in reverse too. And that's what we've been seeing over the course of the year as the pandemic has forced the economy to essentially grind to a halt. As such, it hasn't been a good year to hold ASX bank shares.
Westpac shares are down more than 25% from where they started the year. National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) haven't fared much better. CommBank shares are something of a saving grace, only down around 8% since the start of 2020.
Perhaps this has something to do with the fact that CommBank is the only one of the big four banks not to have delivered a dividend cut in 2020 so far. CommBank was lucky enough to have to record its interim dividend back in February, just before the pandemic struck. Its interim dividend came in at $2 a share, which was in line with its 2019 payout.
In contrast, NAB, ANZ and Westpac were all due to record their dividends in April and May — which ended up seeing Westpac and ANZ 'defer' their payments. NAB payed out a 30 cent per share dividend, which was a substantial cut from the previous year's 83 cents per share interim payout.
But now the chickens are coming home to roost for CBA, and the company is set to soon announce its first post-COVID-19 dividend.
Will CommBank pay a dividend?
According to reporting in the Australian Financial Review (AFR), one investment bank is predicting that Commonwealth Bank will be following the leads of ANZ and Westpac and won't be paying a dividend at all. The AFR reports that Citi Group is preparing for the bank to defer its final 2020 dividend, citing the fact that it will likely have to bump up its cash reserves as it paid such a hefty dividend back in February.
All of the ASX banks are under pressure from the Australian Prudential Regulation Authority (APRA) to keep dividend payouts relatively low, in order to shore up the financial strength of the banking system in the face of the pandemic.
Further, Citi analyst Brendan Sproules reckons the banks won't be returning to their previous payout ratios of around 75% until at least 2022.
Other analysts aren't quite so bearish. The AFR reports that Goldman Sachs is expecting a final dividend from CommBank for $1 per share.
But one thing is for sure — it's not a great year to hold ASX bank shares.
