Today, Australia's big banks have once again hit the mastheads of major financial publications.
Indeed, following the announcement that a 2% increase in the banks' capital buffers would make them 'unquestionably strong'; APRA today said the big banks will be required to account for their mortgage exposure more conservatively.
That means, National Australia Bank Ltd (ASX: NAB), and its peers, will be forced to raise the risk weighting on their mortgages and hold more capital. It'll ultimately lead to lower returns for shareholders than would otherwise be the case.
NAB's response to APRA's latest announcement was a positive one, with its recent record-breaking $5.5 billion capital raising pushing its CET1 ratio (aka capital buffer) into its "target range".
"In conjunction with various other strategic initiatives NAB expected to have a pro forma CET1 ratio of approximately 10 per cent, 100 basis points above the mid point of its target range of 8.75-9.25 per cent," NAB said in an ASX announcement today. "Taking into account the impact of the increase in mortgage risk weights, this is now likely to result in a pro forma CET1 ratio within NAB's target range."
This would be welcoming news to shareholders – many of whom would likely hold NAB shares for its dividend. Previously, analysts – including myself – had raised concerns that increased regulation would put its huge dividend yield in doubt.
While NAB's forecast payout ratio (the amount of current year profits paid out as dividends) of 74% doesn't appear excessive on first glance, I'd find it very difficult to envisage the bank materially increasing its payout while simultaneously building up its capital buffer.
Of course, it could increase its dividend per share but it'll likely be required to rob Peter to pay Paul. That is, it can't have the cake (an adequate capital buffer) and eat it (a rising dividend) too, without selling assets or diluting existing shares.
Should you buy NAB shares?
Right now, I'm not buying NAB shares for their dividend – or for any reason. As Motley Fool writer, Mike King, wrote this morning: "Sooner or later, all things come to an end and the headwinds for the big four banks are rising."
