One leading broker believes that the majority of the big four banks could be in the buy zone right now.
What did Morgans say?
According to a note out of Morgans, with the exception of Commonwealth Bank of Australia (ASX: CBA), its analysts feel the bad debt damage being factored into current major bank share prices is overdone.
Morgans explained: "Across the sector, at this stage we continue to be of the view that the bad debt experience during the current crisis will not be as severe as that experienced during the GFC, largely as this time we are seeing the Australian government and central bank provide cushioning to bank and private sector balance sheets to an extent never seen before."
Westpac Banking Corp (ASX: WBC) remains the broker's top pick in the sector. This is largely on the belief that it feels Westpac is the only major bank where "the bad debt damage being priced in is greater than that experienced during the GFC." It appears to believe this is excessive.
What about their net interest margins?
In addition to this, the broker isn't overly concerned about the big banks' net interest margin (NIM) outlook.
Although Morgans expects the low interest rate environment to continue to be a NIM headwind, there are a number of tailwinds which it expects to largely offset this.
These include a reduction in basis risk with swap-OIS spreads now in negative territory, the RBA's Term Funding Facility (TFF), improvement in institutional lending margins, home loan standard variable rates not being reduced after the last cash rate cut, and strong growth in transaction deposits.
Will they pay dividends?
Morgans doesn't expect Australia and New Zealand Banking GrpLtd (ASX: ANZ) and Westpac to pay interim dividends, even on a deferred basis.
It does, however, expect dividends from them all, including National Australia Bank Ltd (ASX: NAB), in November.
"With the staged easing of lockdown restrictions currently being experienced in Australia and signs of a plateauing in loan repayment deferrals, we expect ANZ, NAB and WBC to declare final dividends in November and we see the possibility of CBA declaring a deferred final dividend in November," the broker added.
Morgans has add (buy) ratings on ANZ, NAB, and Westpac, but a hold rating on Commonwealth Bank.
