What's dragging on ASX 200 bank shares like NAB on Thursday?

ASX 200 bank shares are hurting on Thursday. What's going on?

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Key points

  • ASX 200 bank shares are suffering on Thursday
  • The ASX 200 as a whole is down, while the financials sector is also taking a beating
  • Morgan Stanley analysis suggests the commercial property sector could become problematic for the banks if arrears rise

On a tough day for the S&P/ASX 200 Index (ASX: XJO) so far, ASX bank shares are among those seeing declines today.

The ASX 200 is currently down by 1.1%, while the S&P/ASX Financials Index (ASX: XFJ) is falling by 1.42%.

The big four ASX banks are all in the red at the time of writing. The Commonwealth Bank of Australia (ASX: CBA) share price is currently down 1.58%, Westpac Banking Corp (ASX: WBC) shares are tumbling 0.79%, the National Australia Bank Ltd (ASX: NAB) share price is dropping 0.94%, and the Australia and New Zealand Banking Group Ltd (ASX: ANZ) shares are down 1.38%.

Additionally, the Macquarie Group Ltd (ASX: MQG) share price is falling by 2.67%, and Bank of Queensland Limited (ASX: BOQ) shares are down 1.06%.

What's going on with ASX 200 bank shares?

There are declines across many sectors on the ASX today as investors continue to wrestle with the effects of supply chain issues, inflation and what this means for interest rates.

While some analysts believe that rising interest rates could be helpful for bank net interest margins (NIM), there is still a lot of competition in the sector.

Additionally, analysis by brokers notes that some banks could face difficulties if financial stress in the commercial property sector kicks up.

Commercial property difficulties?

The Australian has reported on research done by Morgan Stanley which showed that the amount of stressed exposure faced by major banks to the commercial property sector could soar five or six times in a recession, with the GFC being used by the broker as a guide.

According to the broker, the big four ASX banks have a combined $311 billion of exposure to the commercial property sector. They also have a total of $43 billion of exposure to the construction industry, which is currently suffering.

It was reported that Westpac saw 3% of its group exposure in 2009 be classed as stressed, with 0.5% being impaired. However, things were much worse in the commercial sector space – 12.5% of exposures were stressed, including 26% of its exposure to developers.

Although, things are looking much better for Westpac at the moment. In Westpac's FY22 half-year result, only 2% of the commercial property portfolio was stressed with 0.2% being impaired.

The Australian reported on comments made by the NAB CEO Ross McEwan that noted how vulnerable the construction industry was because of the difficulties relating to fixed-price contracts, supply chain problems, and higher costs. McEwan said:

It's certainly one of the sectors that we are keeping a close eye on very recently.

A lot of them have been having some difficulties there so that is, as a sector, the most worrying part of our bank when we look across it.

We are yet to see that the economy is having difficulty…but as interest rates start to rise, we have to be conscious that there will be some customers who may have some difficulties.

Foolish takeaway

Time will tell what this means for the big four ASX banks and whether rising interest rates do lead to increased stress or not.

While the share prices of the big four ASX banks have recovered from the COVID lows, only NAB has risen noticeably over the last year, up 16%. Others have seen declines.

Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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