A top fund manager has declared the best days of Australian bank shares are behind them.
The big four local banks – Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB) and Australia and New Zealand Banking GrpLtd (ASX: ANZ) – have been traditionally very reliable sources of excellent dividend yield while maintaining stable share prices.
But this year has seen them slash their dividends due to the COVID-19 recession.
Plus they have seen their business margins squeezed dry with the Reserve Bank of Australia (RBA) cutting the cash rate to almost zero.
Nucleus Wealth head of investments Damien Klassen said that, unfortunately, what big banks have experienced overseas is now creeping into the local market.
"Last 5 or 6 years, European bank shares are down 50% while the rest of the market was up 50%… They're stuck in this unprofitable [trap] because of how low the interest rates are," he said in a Nucleus Wealth webinar.
"Unless we do actually get that stimulus that gets inflation going… then Australia's banks are headed in the same direction."
The hole they are in is rather deep
The only way out is for inflation to pick up and for the Reserve Bank to then lift rates.
But with the economy in the doldrums after the pandemic, the RBA has admitted this is not a likely prospect for a long time.
Even the current government financial support – like JobKeeper and JobSeeker – is due to taper off over the next few months, adding to the economic pressures.
This adds up to a scene where "the risks look pretty high" for Australian bank shares, according to Klassen.
"A lot of Australians have treated banks as [having] stable dividends and capital growth as well. What more could I want? I'll just throw everything into it," he said.
"We don't think that's going to be the case for a little while."
Commonwealth Bank shares are down about 14% in value so far this year. NAB has lost 23%, ANZ has sunk 22% and Westpac is down 26%.