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Will the ASX banks’ share prices recover in 2020?

Sebastian Bowen
ATM with Australian $100 bills

At first, 2019 seemed to be the year of the ASX banks. After a torrid 2018 marred by the now-familiar stories from the Royal Commission, it seemed the ‘Big Four’ had put it all behind them and it was full steam ahead.

Between January and July, Commonwealth Bank of Australia (ASX: CBA) shares were up a solid 17%.

The National Australia Bank Ltd (ASX: NAB) share price did even better with a 23% gain whilst Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group (ASX: ANZ) also booked a similar run up.

But what rises must fall, and the last few months have proved this phrase to be true. The news surrounding the banks since July has been filled with announcements of dividend cuts, franking reductions and in Westpac’s case, a capital raise marred by allegations of illegal activity going through its banking network.

Out of the big four, only CommBank seems to have gotten off lightly, with CBA keeping its shareholder payouts steady and no talk of any impending capital deficits that the market might have to remedy.

What does 2020 hold?

So can the banks turn things around next year? Unfortunately, significant headwinds remain in the air for the banking sector as a whole. Record low interest rates are squeezing the banks’ profit margins and this looks set to continue, if not deteriorate, in 2020.

Many forecasters (including Westpac) are predicting a cash rate of 0.25% by this time next year, and even a possible program of quantitative easing.

On the flip side, the previously stagnant property market seems to be strongly rebounding. As home loans and mortgages are a major contributor to all of the banks’ earnings, higher house prices are a good news story for shareholders.

What about the dividends?

As all four of the major banks pay out market-leading dividends, the maintenance of these payouts is very important to most Big Four shareholders. Unfortunately, I think the pressure will remain on CommBank, NAB, ANZ and Westpac’s dividends next year and we might well see further cuts to raw payout levels and/or franking for shareholders.

Saying that, the existing dividend payments are so high that even a (hypothetical) 15% or even 20% dividend cut will still mean any of the banks remains at the higher end of the market for dividend income (as we have seen with NAB and Westpac this year).

Foolish Takeaway

Whilst I don’t expect big things from the ASX banks and their share prices next year, I still think all four remain valuable stocks to hold, especially if you’re reliant on dividend income.  Banks play a fundamental role in the economy, and I don’t think they’re going anywhere.

The post Will the ASX banks’ share prices recover in 2020? appeared first on Motley Fool Australia.

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Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The Motley Fool's purpose is to help the world invest, better. Click here now for your free subscription to Take Stock, The Motley Fool's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson. 2019