Banking analysts have been focusing on one key question: what will return on equity, or ROE, look like for the major banks once the pandemic crisis has passed?

ROE is important for investors because it could determine how much banks can afford to return to shareholders.

The banking analysts have seemingly reached a consensus, suggesting that the post-Covid-19 ROE will settle at around 10 per cent, once credit losses have been absorbed.

It’s a long way from the previous high point, but this level will still allow banks to keep paying solid dividends, providing attractive returns in a market which is yield-starved at the moment.

If you own bank stocks at the moment, you’ll be playing a waiting game for a while as nobody knows the true extent of the loan troubles.

Banks and regulators are working to reduce the impact when the current stimulus packages and leniency periods come to an end in October.

Recent data released by the Australian Banking Association shows the total number of deferred loans is seven hundred and seventy two thousand. While this figure is growing, that growth is slowing down, which is a promising sign.

Macquarie analyst Victor German said “Current operating conditions are still far from normal and given significant uncertainties we believe a discount is warranted.” But he reckons that Macquarie’s sustainable return on capital will help them to maintain payout ratios of around sixty 5 to seventy 5 percent, representing a sustainable dividend yield of between 4 and 6 percent when conditions normalise and capital targets are met.

For those of us in the property space, it’s vital to know what the banks are experiencing, because that will affect their attitudes when it comes to lending. A confident banking sector will give out more loans, which will help prop up the property industry.