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3 banks that could smash the ASX: National Australia Bank Ltd., Australia and New Zealand Banking Group and Westpac Banking Corp

With the ASX having fallen by over 6% during the last month, Aussie investors will be hoping that October and the rest of Q4 is a much better period.

Indeed, falling generally in line with the wider market has been the banking sector. Overall, it’s had a disappointing year and further volatility looks set to continue.

However, short-term volatility can mean opportunity for long term-investors and, in the case of the banks, the chance to buy shares at relatively attractive price levels. With this in mind, here are three banks that could outperform the ASX moving forward.

National Australia Bank Ltd.

With shares in National Australia Bank Ltd. (ASX: NAB) having fallen by 6% during the course of 2014, they now offer much better value for money. For instance, they trade on a P/E ratio of 12.6, which is below the ASX’s P/E of 15.3, and now offer a fat, fully franked yield of 6%.

Indeed, NAB’s dividends per share are set to rise at an above-inflation rate over the next two financial years of 5.3% per annum. This means that, come 2015, shares in the bank could be yielding as much as 6.5%, thereby making NAB an appealing income play.

Australia and New Zealand Banking Group

With a P/E ratio of 12.3, shares in Australia and New Zealand Banking Group (ASX: ANZ) seem to be relatively attractive – especially when a forecast annualised earnings growth rate of 10.7% over the next two years is taken into account.

Certainly, shares in the bank have disappointed during 2014 (down 3% versus a 1% fall for the ASX), but with a fully franked yield of 5.5% and a beta of 0.9, they could prove to be a sound defensive growth play moving forward.

Westpac Banking Corp

Over the last ten years, Westpac Banking Corp (ASX: WBC) has delivered annualised growth in earnings of 6.5%. Given that the period has included the GFC, that’s remarkably impressive.

Looking ahead, a slower growth rate is expected of 4.9% per annum over the next two years, but to compensate, Westpac offers a fully franked yield of 5.6%. With dividends per share having risen by 9.5% per annum over the last ten years, Westpac could prove to be a reliable dividend payer that could beat the ASX. This could be especially true during a downturn, since its beta is just 0.8.

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Motley Fool contributor Peter Stephens does not own shares in any of the companies mentioned.

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