Investors looking for options in the banking sector outside the big four banks will often turn to Bank of Queensland Limited (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN) shares.
But which one is better than the other right now?
Should you buy Bank of Queensland or Bendigo and Adelaide Bank shares?
According to a recent note out of Goldman Sachs, its analysts believe Bank of Queensland shares are the better option for investors.
Goldman has a buy rating and $9.66 price target on Bank of Queensland shares and a neutral rating and $9.90 price target on Bendigo and Adelaide Bank shares. This implies potential upside of 22% and 13%, respectively, over the next 12 months.
In addition, the broker expects generous fully franked dividend yields from both banks in FY 2022. Based on where their shares are trading today, Goldman is forecasting a 5.5% yield from Bank of Queensland and a 6.1% yield from Bendigo and Adelaide Bank.
This increases their respective total potential returns to 27.5% and 19% between now and this time next year.
Why does the broker prefer Bank of Queensland?
Goldman prefers Bank of Queensland's shares due to its valuation and the bank having more offsets to mortgage related net interest margin (NIM) pressures.
The broker explained: "While the current environment looks difficult for retail profitability, given the move in three-year swap rates, we are of the view that we are likely to see further repricing by the major banks, which will provide some relief to these NIM pressures. Furthermore, with the lowest advertised fixed rate mortgage loans now becoming somewhat higher than the best variable rate loans, it is possible we see the mix shift back towards higher spread variable mortgages."
"We therefore maintain our Buy recommendation on BOQ, which we believe has more offsets to these mortgage NIM pressures in the form of i) BOQ's more rate sensitive deposit book, and ii) the continued delivery of ME Bank synergies. Coupled with 20% upside to our revised TP, we stay Buy," it added.
