Why are the CBA and WBC share prices stumbling today?
Shares in the major banks have risen more than 50% in the last 12 months.
The banking sector is among the worst performers on the ASX on Tuesday, with each of the big banks, Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) trading between 0.8% to 1.3% lower at the time of writing.
What is weighing down sentiment in bank stocks?
The weak sentiment is likely based on concerns about the impact of continuing lockdowns on households’ ability to service their mortgages.
According to research by the University of New South Wales, two-fifths or about 42% of households in Australia are likely facing mortgage stress based on how much money is left after their normal expenditure compared to their income.
The research classified households with less than 5% money left as "stressed" while those with a deficit of more than 5% were "severely stressed".
The report, involving 52,000 households that pay either a mortgage or rent, found the proportion with stress has risen to nearly 42%, compared to about 33% in February 2020. Most of these households were concentrated in the big property markets of Sydney and Melbourne.
If the limited sample size is extrapolated across the wider home loans market, it could have some impact on the financial position of the major banks, which see the biggest proportion of their earnings contributed by the mortgage business.
Global property woes
The warning flagged by the research comes at a time when global financial markets are being roiled by concerns over the potential collapse of China’s biggest property developer Evergrande, which would have an impact globally on sectors ranging from iron ore to construction to bonds.
It also comes amid worries about a contraction in economic growth in Australia following extended lockdowns in Sydney and Melbourne, which will already impact the banking sector because of its major exposure to large and small businesses that have been forced shut.
Meanwhile, banks are already seeing a clear slowdown in the housing market with CoreLogic data showing the national home value index rose 1.5% in August, its smallest rise since January.
The lockdowns mean the major banks are also having to shoulder the burden of loan repayment deferrals and fee waivers. The Australian Banking Association, which represents the country’s biggest banks, has already rolled out support measures for businesses, sole traders and households affected by the recent spate of lockdowns.
Banks have so far been the best performing stocks on the ASX over the last 12 months, with their values rising more than 50% over that period. But wary investors would now be looking to book at least some of those profits.
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