While Australian banks have rarely looked cheaper, the outcome of the ongoing Royal Commission is critical given the modest growth environment as well as regulatory, credit, and competition risks, investment manager DNR Capital says.
Even though the banks have been making the news for all the wrong reasons lately, DNR chief investment officer Jamie Nicol said he is becoming more interested in the banks as they sell off.
Among the positives, Nicol said the banks currently offer a very attractive dividend yield of close to 7 per cent fully franked.
Also, some of the impacts from the inquiry will ironically be positive for the banks, he said.
“The inquiry has highlighted lending standards and we are likely to see the banks give greater scrutiny to the expense history of customers, which may potentially cause a sharp slowdown in lending growth.”
Nicol explained that this can be positive for banks because they need less capital to support their loan base.
“CBA is also pushing for a crackdown on mortgage brokers and volume payments, which would push volume through the bank-owned channel.”
Nicol also pointed out that this inquiry may well be the last for a while, and so once it is behind them, they will likely have some “clean air” from a regulatory perspective.
“Overall the banks have underperformed for some time now,” he said.
