National Australia Bank Ltd Vs Westpac Banking Corp: Which to buy?

These two iconic Aussie banks go head-to-head for your investment dollars.

| More on:

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) are two of Australia's biggest banks, with huge customer bases and market shares across a number of extremely lucrative products such as mortgages, agribusiness, personal loans and business banking.

However despite both of their share prices growing much quicker than the S&P/ASX 200 (ASX: XJO) (INDEX: ^AXJO) over the past 12 and 24 months, they offer investors different growth prospects. Let's take a quick look at which one is best positioned to grow your wealth in the next five years.

Name Westpac Banking Corp National Australia Bank Ltd  
Stock ticker ASX:WBC ASX:NAB
Recent share price $34.77 $33.81
Market Cap $107 billion $78.9 billion
Price-Earnings Ratio | 10-year Average 15.5 | 12.95 13.6 | 12.4
Dividend Yield 5.1% 5.8%
Price to Book ratio 2.30 1.83
Net Interest Margin 2.11% 1.94%

Data sourced from Morningstar

As can be seen from the above, Westpac is a much larger bank and, as a result, has been able to grow strongly in the past two decades on the back of continuous growth in the housing sector or, more specifically, mortgages. It derives a huge part of its earnings from its Australia Financial Services division which includes retail and business banking operations throughout Australia.

It has 23% of Australian household deposits, 23% of the Australian housing market and 20% of New Zealand consumer lending. This helped the bank grow earnings 8% to $3.722 billion for the first half of 2014. Recently however its dominance in key markets and conservative balance sheets has pushed up its share price to a staggering price-book ratio of 2.3 and PE ratio of 15.5.

In contrast, NAB is the cheapest big bank, currently on a price book ratio of 1.83 and trailing PE ratio of 13.6. This can be attributed to the bank's troubled UK assets and poor level of profitability in local markets, which have hindered its performance. This is evident from its low net interest margin and return on equity.

However it currently controls more than 20% of both agribusiness and business lending in Australia and New Zealand and approximately 15% of housing lending. Despite its comparatively cheap share price, until management can rid the bank of the troubled UK commercial loans and divest away from the UK Banking division altogether, it would be hard to justify buying some of its shares.

The Best BUY of all

Despite Westpac controlling a huge portion of Australia's financial markets, I believe it is expensive given the increased likelihood of lower earnings growth in the next 5 to 10 years. NAB however could be the dark horse of the "Big Four" but many investors who've waited for its fortunes to turnaround have been bitterly disappointed, given the bank has returned a meagre 11% capital gain over the past 10 years. As such I believe, neither of these two big banks are a good 'BUY' at current prices.

Motley Fool Contributor Owen Raszkiewicz does not have a financial interest in any of the mentioned companies. 

More on ⏸️ Investing

Close up of baby looking puzzled
Retail Shares

What has happened to the Baby Bunting (ASX:BBN) share price this year?

It's been a volatile year so far for the Aussie nursery retailer. We take a closer look

Read more »

woman holds sign saying 'we need change' at climate change protest
ETFs

3 ASX ETFs that invest in companies fighting climate change

If you want to shift some of your investments into more ethical companies, exchange-traded funds can offer a good option

Read more »

a jewellery store attendant stands at a cabinet displaying opulent necklaces and earrings featuring diamonds and precious stones.
⏸️ Investing

The Michael Hill (ASX: MHJ) share price poised for growth

Investors will be keeping an eye on the Michael Hill International Limited (ASX: MHJ) share price today. The keen interest…

Read more »

ASX shares buy unstoppable asx share price represented by man in superman cape pointing skyward
⏸️ Investing

The Atomos (ASX:AMS) share price is up 15% in a week

The Atomos (ASX: AMS) share price has surged 15% this week. Let's look at what's ahead as the company build…

Read more »

Two people in suits arm wrestle on a black and white chess board.
Retail Shares

How does the Temple & Webster (ASX:TPW) share price stack up against Nick Scali (ASX:NCK)?

How does the Temple & Webster (ASX: TPW) share price stack up against rival furniture retailer Nick Scali Limited (ASX:…

Read more »

A medical researcher works on a bichip, indicating share price movement in ASX tech companies
Healthcare Shares

The Aroa (ASX:ARX) share price has surged 60% since its IPO

The Aroa (ASX:ARX) share price has surged 60% since the Polynovo (ASX: PNV) competitor listed on the ASX in July.…

Read more »

asx investor daydreaming about US shares
⏸️ How to Invest

How to buy US shares from Australia right now

If you have been wondering how to buy US shares from Australia to gain exposure from the highly topical market,…

Read more »

⏸️ Investing

Why Fox (NASDAQ:FOX) might hurt News Corp (ASX:NWS) shareholders

News Corporation (ASX: NWS) might be facing some existential threats from its American cousins over the riots on 6 January

Read more »