Is the National Australia Bank Ltd (ASX: NAB) share price a buy now?
Of the three major ASX banks that recently reported, NAB was the only one that decided to pay a dividend on time. Australia and New Zealand Banking Group (ASX: ANZ) and Westpac Banking Corp (ASX: WBC) both decided to defer their dividend payment decisions to a later date.
What did NAB do at its result?
NAB decided to reduce its interim dividend to $0.30 per share. That's a cut of around two thirds from the last dividend. Better than not getting anything, but that's a very painful income hit when you're expecting to use those dividends to pay for your life expenditure.
Why such a large decline? Well there's a reason the NAB share price is down 40%. And why many shares are down. The effects of the coronavirus are brutal, both for healthcare reasons and the economic impacts.
NAB's half-year result showed that its cash earnings were down 51.4% to $1.44 billion. Even after excluding large notable items, profit was still down 24.6% to $2.47 billion. This painful result included $807 million of a top-up to the economic adjustment to reflect potential coronavirus impacts. And that's from just one bank.
NAB has been seeing loan arrears rise over the past few half-year results. It's likely to get much worse this year.
The major bank ended the period with a CET1 ratio of 10.39%, which is why the bank decided to launch a large $3.5 billion capital raising to make sure that the bank's balance sheet is strong enough to get through this period whilst continuing to lend during this difficult time.
Is the NAB share price a buy?
The NAB share price is around its GFC low. So perhaps it is a medium-term buying opportunity. Buying when fear is everywhere is not a bad mantra to have. The NAB share price is down 40%, so clearly there is a lot of fear.
However, I don't think the initial bad debt provisions will be enough to cover the pain unless Australia's economy can do particularly well this year. The jobkeeper scheme certainly helps, but it may not be enough. For long-term returns I'd rather buy different shares with better earnings growth prospects.
