Top broker picks best ASX 200 bank shares to buy coming out of reporting season

Investors shouldn’t view ASX 200 bank shares as a homogenous group and last month’s reporting season can help you pick…

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Investors shouldn’t view ASX 200 bank shares as a homogenous group and last month’s reporting season can help you pick the next winners.

While the share prices of ASX banks have performed well against the S&P/ASX 200 Index (Index:^AXJO), JPMorgan believes this could be about to change.

The broker reviewed the sector following the August profit season and made changes to its recommendations.

Mind you, not all of the ASX 200 bank shares posted full year results last month. In fact, only Commonwealth Bank of Australia (ASX: CBA) and Bendigo and Adelaide Bank Ltd (ASX: BEN) did.

The other ASX big banks issued updates instead. That was enough for JP Morgan to identify some key themes.

“Margin trends were mixed this quarter/half and we expect mortgage margin headwinds to re-emerge, supporting our preference for more business-exposed banks,” said the broker.

The ASX 200 bank upgraded to “buy”

This is one reason why JPMorgan upgraded its recommendation on the National Australia Bank Ltd. (ASX: NAB) share price to “overweight”.

At the same time, the broker cut its rating on the Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price to “neutral” from “overweight”.

“We have become more concerned about ANZ’s struggles in the Australian mortgage market, and think the turnaround will be more protracted than we first thought,” said JPMorgan.

“When combined with the pushback of rate rises by the RBNZ due to the NZ COVID-19 outbreak, we struggle to see the near term catalysts to re-rate the stock despite valuation support.”

Why the NAB share price can outperform

In contrast, the broker reckons that NAB is well positioned to grow revenues. The bank has strong customer satisfaction scores with both consumers and businesses. NAB is also the leader among the ASX big banks for business lending.

This should mean more stable margins as the residential lending market is more competitive compared to small and medium business loans.

“AUSTRAC issues remain to be resolved, but we already incorporate AML investment in our forecasts with plenty of capital headroom to absorb any one-off hit,” added JPMorgan.

“Prolonged lockdowns may impact SME asset quality but provisions look solid.”

Best ASX 200 bank shares to buy now

However, NAB is not the broker’s top pick for the sector. The ASX bank that represents the best buy is the Macquarie Group Ltd (ASX: MQG) share price, according to JPMorgan.

This is followed by the NAB share price then the Bank of Queensland Limited (ASX: BOQ) share price.

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Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, Macquarie Group Limited, and National Australia Bank 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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