Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy?
The ANZ share price initially fell yesterday after the RBA decided to cut interest rates by a further 0.25% to make the current interest rate 1%. That sounds painful for savers!
One of the main reasons that investors were negative on ANZ yesterday was that it passed on the entire rate cut to borrowers rather than holding some of the rate cut like Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) did.
It means that ANZ won't benefit from any improvement of its net interest margin (NIM), although it kept some of last month's rate cut, so across the two rate cuts ANZ has somewhat benefited.
The question will be whether ANZ will indirectly benefit from its borrowers having better (meaning cheaper) monthly repayments, or whether the RBA cut its interest rate because of the worsening conditions of the arrears of people with their mortgages which ANZ is suffering from along with most of the other big banks and the smaller regional banks.
However, with the RBA cutting interest rates it does make the dividend yield offered by ANZ seem more attractive compared to the interest rate you could get from a term deposit. ANZ currently has a grossed-up dividend yield of 8.2%, which looks far better than the 2% (or less) offered by bank savings options.
Foolish takeaway
ANZ is currently trading at under 12x FY20's estimated earnings. If the housing market stabilises then this could be a decent price to buy ANZ shares, but I'm not yet convinced that house prices will continually improve from here. Loan arrears could also get worse before they get better. Only time will tell.
