The Westpac (ASX: WBC) share price has fallen 44% since the COVID-19 outbreak hit western share markets.
What is Westpac?
Westpac is one of Australia’s ‘Big Four’ banks and a financial-services provider headquartered in Sydney. It is one of Australia’s largest lenders to homeowners, investors, individuals (via credit cards and personal loans) and business.
Why are banks being punished so much?
The financial situation for Australia has worsened over the last month. A while ago Aussie investors just had to worry about the impacts in China and what that would do to the supply chains and things like that.
Banks are a barometer for the whole economy. If a certain section of the economy is suffering, like resources or agriculture, then the bank will see higher risks from that particular area. But this COVID-19 outbreak is causing most industries to slowdown or just shut completely. Many employees are suffering too. No income likely means no payment to the banks.
To try to support the economy, the RBA cut its interest rate to an even lower level. But that means a lower net interest margin (NIM) for Westpac, which is a key profit measure for banks. Borrowers that are having cashflow issues can have a payment holiday for up to six months.
These measures are good for the economy for the longer term, but it is likely to mean Westpac’s profit and dividend are very likely to be lower this year.
Is the Westpac share price a buy?
Banks have a slow growth outlook, even in good times. The Westpac dividend yield, as good as it looks far above 10%, could be trap and I don’t think it looks like a buy yet with all of this uncertainty ahead, despite the GFC-level price. For me, tech shares have better margins and better outlooks:
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Disclosure: At the time of publishing, Jaz does not have a financial interest in any of the companies mentioned.
