The top 4 Australian banks are always in the news – either for the right or wrong reasons. It’s as they say, there is no such thing as bad press. On the back of the new budget, the banks have been on the right end of news. All 4 banks have gained fuel from the Federal Government making it easier for people in Australia to get their hands on a loan.
While this may be good news for banks in the short term, the decision by the government to relax responsible lending laws is heavily reliant on the country already having seen and overcome the worst the pandemic has to throw at us.
The downside risk from this is the further bad debts that the banks may incur. Banks are on the front lines during any financial crisis. While picking a stock from the banking sector, it is now more imperative than ever to analyse where a lot of their lending activity is. For example, when oil stocks went negative earlier this year, banks with most exposure to oil by virtue of handing out loans were the most affected.
The climate has changed for banks. Investors should now be more careful than ever when picking a stock from the banking sector for their portfolio.
Should You Buy Australian Bank Stocks
Dividend was the single biggest reason to have bank stocks as a part of your portfolio. However, with the latest cuts in dividend, this becomes a much more important question. Banks are very stable businesses and there is not much growth that can be expected. If you are considering adding bank stocks to your portfolio for the long term, we urge you to have a look at our sector report where we have pit the big 4 against each other to determine the best choice.