Is the Australia and New Zealand Banking Group (ASX: ANZ) share price a buy today?
The ANZ share price has gone up by 14.3% over October alone and the month hasn't finished yet. Though it may fall a bit today. Either way, it has gone up nicely in a short amount of time.
What has happened recently?
ANZ has been going up after a few positive developments for the bank.
'Responsible' lending laws are going to be axed so that credit will flow easier to borrowers so that the economy can recover from COVID-19 quicker. It's up to you to decide what that means in light of the Hayne royal commission – but it's going to help ANZ's growth that's for sure.
Another big help for positive sentiment was the recent Australian federal budget that announced tax cuts for a large number of Australian workers. We've seen how well jobkeeper and an improved jobseeker helped stabilise the Australian economy during this recession. Tax cuts could be another boost for the economy and the share market.
Melbourne's COVID-19 situation has been improving throughout October and this week was the first time in months that it reported 0 new daily cases. Retail will finally open and most other businesses can open in a couple of weeks. This should be good news for the strength of ANZ's Victorian loan book.
Not everything is great though
ANZ's loan book isn't impervious to COVID-19 difficulties. In the third quarter of FY20, it recognised another provision charge of $500 million. This was on top of the $1.56 billion provision in the second quarter. ANZ's total provision balance is now $4.65 billion.
One of the most worrying statistics from the third quarter was that the number of Australian home loans that are overdue by more than 90 days increased by 18 basis points (from 31 March 2020) to 1.28% at 30 June 2020. These borrowers are the ones that were ineligible for deferral.
How many borrowers will go from a current payment holiday to being an overdue borrower? Thankfully a number of borrowers are now making repayments again, even if some of them are only making interest-only repayments.
There are a number of issues hurting ANZ's net interest margin (NIM) at the moment: It's a low interest rate environment in all geographies, there has been a shift in customer preferences to fixed interest loans, across the loan market there is higher competition and retention pricing, and there has been a reduction in unsecured (higher margin) retail lending.
It's a difficult period, I'm not buying bank shares
COVID-19 has caused a tough environment for the banks. Increased lending may be good news for the bank but there are plenty of other factors that are not helping ANZ's cause.
The RBA has said that interest rates are likely to stay low for a few years. So I can't see ANZ's profit recovering to FY19 levels any time soon. Particularly whilst loan arrears are elevated and rising. Royal commission remediation continues to bite at big bank profits.
ANZ has done quite well to remain resilient during this period of uncertainty and maintain a strong balance sheet.
There are plenty of other ASX shares that I'd buy for dividends such as Magellan Financial Group Ltd (ASX: MFG), Brickworks Limited (ASX: BKW), Washington H. Soul Pattinson and Co. Ltd (ASX: SOL) and APA Group (ASX: APA).
I think there are other ASX shares that offer more growth potential than ANZ and can still pay a growing dividend for shareholders. There may be a time that ANZ is worth buying, perhaps in a rising interest rate environment, but I wouldn't want to buy it for my own portfolio today.
