Earnings Headwinds Pile Up on the Banks. Earnings, Dividends, and Fair Value Estimates Lowered

We have lowered our earnings and dividend forecasts for the banks, but with share prices down by as much as 40%, all are materially undervalued on our revised fair value estimates, or FVEs. Our fiscal 2021 forecasts are down between 6.5% to 11%, with National Australia Bank affected most by heightened risk of small business' defaults. On average we assume another 5 basis point reduction in NIM from fiscal 2021, with bad debts rising to around 22 basis points of loans, up from our previous expectation of 13 basis points. Dividends are also expected to fall across our coverage list. While near-term headwinds continue to mount, our FVEs are predicated on our view that the long-term cash rates will normalise and the majors will continue to benefit from cost advantages and switching costs, which underpin their competitive advantages.