Bendigo Bank share price slides 7% as ASX banking basket unwinds on Wednesday

Listed equities of ASX banks have taken a hit on Wednesday following the Reserve Bank of Australia (RBA)’s decision to hike base rates in its policy meeting yesterday.

At its meeting, the RBA moved to increase the cash rate target by 50 basis points to 85 basis points (0.85%), citing inflation as the main undercurrent for its decision.

“Today’s increase in interest rates will assist with the return of inflation to target [2–3%] over time.”

Nonetheless, banks have felt the brunt of the RBA’s move with the S&P/ASX 200 financials index (XFJ) sliding 270 basis points towards 3-month lows today. Meanwhile, the Vaneck Australian Banks ETF (ASX: MVB) has curled down by more than 3% to $29.40.

The downward momentum appears to have spilt over to the Bendigo and Adelaide Bank Ltd (ASX: BEN) share price as well.

TradingView Chart

What’s all the fuss about?

A spike in commercial interest rates is more often than not a positive for banks net interest margins (NIMs) in the near-term.

However, as Credit Suisse analysts pointed out in their reaction to the RBA, in the long-term, such moves will likely impact asset quality – in particular, house prices.

Input from analysts at various financial services firms note there is set to be an impact to net interest income with every increase in NIM, The Australian reports.

Despite the accretion to NIMs and net income, these are offset by headwinds faced on the funding side as well, meaning the cost of finance, debt and equity will increase for banks’ as well.

Warren Buffett’s mentor, Benjamin Graham, quoted that “in the short run, the market is a voting machine but in the long run it is a weighing machine”.

That means the market will seek to price in any changes to a company’s stock based on its long-term outlook by evaluating the substance of the company.

With the longer-term outlook now shifting for ASX banks, investors appear nervous on where to position in the sector for the impeding rates-rises. Evidently, what matters is the underlying fundamentals of a business.

After a strong run this year to date, the Bendigo Bank share price has danced around the $31 level for a number of weeks before the rug was pulled out from beneath today.

As such, it has now clipped a 4.2% loss for the last 12 months, or a 3% loss this year to date.

The post Bendigo Bank share price slides 7% as ASX banking basket unwinds on Wednesday appeared first on The Motley Fool Australia.

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Motley Fool contributor Zach Bristow 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 positions in and has recommended Bendigo and Adelaide Bank Limited. 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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