ASX 200 bank shares tumble: Citi says time to buy

ASX 200 banks might be better equipped to handle higher interest rates than some might expect.

A white and black clock face is shown with three hands saying Time to Buy reflecting Citi's view that it's time to buy ASX 200 banks

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Key points

  • ASX 200 banks could be squarely in the buy zone following their sell-offs last week and today 
  • The market appears to be bidding Australian banks lower on the back of concerns that rising rates could dint the banks' mortgage portfolios 
  • Citi believes such concerns are unjustified and the banks have already built a "significant level of financial buffer" against rising rates

The S&P/ASX 200 Index (ASX: XJO) bank shares suffered a major downturn last week, and today isn't looking any brighter. In fact, the share prices of each of the big four banks are down between 3.8% and 4.5% on Tuesday.

But has their fall presented a buying opportunity? That's what top broker Citi is reportedly tipping.

The broker is said to have brushed off concerns that rising interest rates could be detrimental to the housing and mortgage market.

Let's take a closer look at why Citi believes now is a good time to snap up ASX 200 bank shares.

Citi says now is the time to snap up Aussie banks

It's been a rough time for ASX 200 bank shares. They were battered by the Reserve Bank of Australia's decision to lift interest rates by 0.5% last week in an effort to control inflation. And the regulator is expecting to hike rates further in the future.

This news likely had Australians' pockets feeling lighter, but it will allow banks to reprice their mortgages.

However, higher rates can also mean more bad debts and lower housing prices. Thus, reducing the quality of a bank's mortgage portfolio.

But Citi isn't worried. It says now is the time to buy into ASX 200 banks, reports The Australian.

"We believe investors have re-evaluated their mortgage asset quality concerns, given the sharper than expected future cash rate trajectory," said Citi analyst Brendan Sproules.

"This is leading to a view that many borrowers don't have enough buffer to manage through the current environment."

But Citi believes ASX 200 banks have likely already factored in current and upcoming interest rate hikes.

"We find that the current underwriting standards explicitly build a significant level of financial buffer, even for the most leveraged borrowers," Sproules was quoted as saying.

"Also, we find that the banks possess material excess loan loss provisions to cushion any asset quality deterioration."

How are ASX 200 banks performing on Tuesday?

Macquarie Group Ltd (ASX: MQG) is leading today's downturn among ASX 200 banks. The Macquarie share price has slumped 6.2% so far today.

Meanwhile, the share prices of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), and Australia and New Zealand Banking Group Ltd (ASX: ANZ) are down 4.2%, 4%, and 4.5% respectively.

Westpac Banking Group (ASX: WBC) is outperforming its peers with the share price falling 3.8%.

For context, the S&P/ASX 200 Financials (ASX: XFJ) index is down 3.9% at the time of writing.

Citigroup is an advertising partner of The Ascent, a Motley Fool company. Motley Fool contributor Brooke Cooper has no position in any of the stocks mentioned. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has recommended Macquarie Group Limited and Westpac Banking Corporation. 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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