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Which is the best ASX bank to buy?

Which is the best ASX bank to buy for your portfolio?

I think it’s an important question. Unless you’re invested in an ASX index option like Vanguard Australian Share ETF (ASX: VAS) or Australian Foundation Investment Co. Ltd. (ASX: AFI) you don’t have to be invested in every single ASX bank.

There are differences between the banks, but they are subtle. Here are some of the ASX bank options:

Regional banks

Some ASX banks are significant players in their own state and are growing in other states.

There is Tasmania-based Mystate Limited (ASX: MYS). Bendigo and Adelaide Bank Ltd (ASX: BEN) is focused on Victoria & South Australia. In Queensland there is Bank of Queensland Limited (ASX: BOQ) and Suncorp Group Ltd (ASX: SUN).

With the ongoing strength on the Tasmanian housing market, I’d pick Mystate out of the regional banks with its grossed-up dividend yield of 9.3%.

Major banks

Investors such as WAM Leaders Ltd (ASX: WLE) currently prefer the slightly more mortgage-focused banks of Commonwealth Bank of Australia (ASX: CBA) and Westpac Banking Corp (ASX: WBC).

With banks tightening lending practices Westpac and CBA can be extra picky with who they lend to, which should mean a higher quality level of borrower. However, they are also more exposed to the declining housing market with their current loan books.

But, all of the major banks are roughly the same in terms of the risk profile relating to the Australian housing market.

However, Australia and New Zealand Banking Group (ASX: ANZ) still has some Asian banking operations whilst National Australia Bank Ltd (ASX: NAB) is working closely with some of Australia’s fastest growing businesses such as Xero Limited (ASX: XRO) and REA Group Limited (ASX: REA).

Out of the four, I’d pick NAB for its dealings with businesses and its trailing grossed-up dividend yield of 12.2%.

Any other bank options?

Out of all the banks on the ASX, I think the best choice could actually be the investment bank Macquarie Group Ltd (ASX: MQG).

Macquarie has little exposure to the falling Australian housing market, it generates a large amount of reliable management fees and it has a truly earnings global base. It has also been steadily growing its dividend over the past several years, providing a pleasing source of income.

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Motley Fool contributor Tristan Harrison has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of MyState Limited, National Australia Bank Limited, and Xero. The Motley Fool Australia has recommended REA Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. 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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