Why are the CBA and WBC share prices under pressure today?
Shares in the major banks have risen 40-50% in the last 12 months.
Shares in Australia’s biggest banks are among the biggest losers on the ASX boards on Friday. Commonwealth Bank (ASX: CBA) shares were down 1.6% to $97.90 at the time of writing, while rivals Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) were each trading more than 1% lower.
What is dampening sentiment in the Big Four banks?
The impact is partly due to the slump in global markets overnight based on worries about moderating economic growth as the delta variant of COVID-19 runs rampant. All 3 US indices as well as European markets ended lower.
Shares of banking companies were among the worst affected, with outlook for bank earnings already hit by the drop in bond yields in recent weeks.
The concerns have played out in the local market too. New South Wales, Australia’s most populous state, reported a record number of COVID-19 infections on Friday, despite an extended lockdown in Sydney, which will likely have ramifications for the country’s economic recovery.
As a result, sentiment in the local banking sector, which has the biggest weightage on the main ASX indices, has taken a hit.
Impact on earnings outlook
The Australian Banking Association, which represents the nation’s biggest banks, announced it will rollout a new support package nationally for individuals and small businesses affected by the recent spate of lockdowns.
Under the plan, customers will be able to defer their mortgage payments on a month-by-month basis, while small businesses will be able to delay loan repayments by up to 3 months.
The move comes just weeks after the 4 big banks announced a rebound in profits after reversing nearly $1 billion in bad debt provisions due to Australia’s better than expected economic recovery. The sustainability of that recovery is now under a cloud.
Investors are also worried about the impact of the uncertainty of the booming housing market, to which the Big Four banks have the largest exposure, and which contribute a significant proportion of banks’ earnings.
Although bank shares have been among the best performing on the ASX over the last 12 months, the renewed uncertainty could certainly take some of that shine off.
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