Shares in the big four ASX banks dragged up the S&P/ASX 200 (ASX: XJO) 33 points yesterday to close at a nine-month high of 6,531 points.
This comes as bank regulators signal the end of dividend restrictions that have previously prevented banks paying out more than 50% of profits in the form of a dividend.
Buyers have now rotated into ASX bank shares, putting further downwards pressure on other sectors that had previously been the winners from the COVID-19 pandemic.
What happened?
Commonwealth Bank of Australia (ASX: CBA) led the charge yesterday, climbing 2.87% to $77.55 per share. The National Australia Bank Ltd (ASX: NAB) share price finished at $22.29 (up 2.06%), Australia and New Zealand Banking Group (ASX: ANZ) climbed to $22.01 (up 1.34%) and Westpac Banking Corp (ASX: WBC) finished the day at $19.45 (up 2.26%).
The hint regarding dividends from APRA comes after an announcement from The Australian Banking Association this week that nearly 70% of bank customers on deferred loans were now making payments.
The economic outlook for banks is looking slightly better as they have stronger capital positions as a result of falling deferral rates.
Some of my thoughts on ASX bank shares
This is definitely a win for all ASX bank shares, but it is important to remember that the RBA has indicated the cash rate will be effectively 0% for the next three years.
Banks typically struggle in low-interest-rate environments (which you can read about here) and I see this as an ongoing headwind for quite some time.
While this is a headwind for the banking sector, a low-interest-rate environment is usually a tailwind for technology companies. Therefore, I see this as an opportunity to take advantage of some of the pullbacks in the bigger ASX tech names.
Technology companies can benefit from low interest rates for a couple of reasons. Firstly, they usually take on large amounts of debt to fund growth, which means they can borrow large amounts at a cheaper cost.
Secondly, interest rates get factored into valuation methods such as discounted cash flow (DCF) models. When it comes to modelling, a lower interest rate (discount rate) will result in a higher intrinsic value of the company’s shares.
Summary
The ASX banks seem like a safe option, but I’m more interested in companies that are going to benefit from a low-interest-rate environment rather than be hindered by it.
You can read about a couple of my favourite ASX tech shares in this article: 2 ASX tech shares I’d happily buy today
