The macro environment is very beneficial for ASX bank shares: expert

More cash on the table for shareholders of ASX bank shares? This expert believes so…

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The past week was eventful, to say the least. In particular, the spectacle that Commonwealth Bank of Australia (ASX: CBA) created with its enormous $10 billion splurge across dividends and buybacks. One Australian investing expert suggests there could be more to come from ASX bank shares, with the conditions being optimal.

Conveniently, investors won't need to wait too long to find out whether this is true – Bendigo and Adelaide Bank Ltd (ASX: BEN), Westpac Banking Corp (ASX: WBC), and Australia and New Zealand Banking Group Limited (ASX: ANZ) are all slated to report this week.

Good conditions for ASX bank shares

As we look back at the full-year results of CBA and National Australia Bank Ltd. (ASX: NAB) this past week, it is easy to be blown away. For instance, cash earnings for the two banking giants were up 19.7% and 13.3% respectively. Hence all the excess cash available to be splashed around.

However, it is important to note that for the most part, these stellar figures are due to the improvement in credit conditions. More simply, the banks are partly making more money because of the generous monetary policy and government stimulus.

It is hard to be upset about that, irrespective of being a shareholder or not. The monetary slush fund has aided Australia in battling the impacts of the pandemic. Thankfully, the Australian economy has snapped back thus far without much in the way of devastation.

The side effect is somewhat of a 'get out of jail free' card to the ASX bank shares. Specifically, Aussie banks didn't need to contend with large bad debts for the most part. In other words, less money is set aside for loan defaults and more cash in the kitty.

Expert's take

Paul Xiradis, Executive Chairman and Head of Equities at Ausbil Investment Management, said:

We see this macro environment as very beneficial for banks over the coming year, and we remain overweight the sector.

Some risks remain in the potential for extended lockdowns, and the impact of any persistent inflation, however banks tend to benefit in an early inflationary environment and any rising rates would have some early benefit on net interest margin.

He added:

We expect to see more capital management across the banks in terms of buybacks, which bodes well for the future earnings per share and returns for long holders of bank stocks.

Off-market buybacks provide an attractive boost to returns for those able to access the benefit of franking credits available.

Indeed, the Australian fund preaches what it speaks. According to its fact sheet, the Ausbil Active Dividend Income Fund is overweight CBA, NAB, WBC, and Macquarie Group Ltd (ASX: MQG). In its monthly performance review, the fund also specified it is positioned for economic growth ahead. The fund considers ASX bank shares to be beneficiaries of this trend.

Motley Fool contributor Mitchell Lawler owns shares of Commonwealth Bank of Australia and Macquarie Group Limited. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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