Why are ASX 200 bank shares having such a cracking start to the week?

The big four bank shares are having a solid start to the trading week on Monday compared to the ASX 200 Index

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Key points

  • The big four banks are outperforming the broader ASX 200 share index today
  • CBA is one of the financial institutions leading the way, along with ANZ
  • However, Westpac shares are lagging behind the others

The big four ASX bank shares are outperforming the broader share market today.

Where the S&P/ASX 200 Index (ASX: XJO) has been deep in the doldrums today and is currently down almost 0.7% to 6,431 points, the ASX’s biggest banks are doing noticeably better.

At the time of writing, the Commonwealth Bank of Australia (ASX: CBA) share price is up 0.54% while shares in the National Australia Bank Ltd (ASX: NAB) are trading around 0.4% higher.

The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is the best performer of the ASX 200 bank shares, up by 1.18%.

Meanwhile, the Westpac Banking Corp (ASX: WBC) share price is slightly lower in late afternoon trading down just 0.16% at the time of writing.

However, there’s no official news out of any of the big four banks and today’s share price movements reverse only a bit of the damage that the banks have seen in recent weeks.

Pain for the ASX 200 bank shares

In just the last month, there have been some double-digit declines for the major banks.

They have all fallen roughly the same amount in percentage terms, with the Westpac share price falling 18.6% over the past month, and shares in NAB, ANZ and CBA down a respective 16.25%, 15.9% and 16%.

Why such significant share price declines over a short period of time?

Inflation and interest rates

While most experts and investors blame inflation and rising interest rates for the share price falls in the ASX banking sector, it’s not that simple.

For example, analysts at Morgans recognise that higher interest rates could be a benefit for the net interest margins (NIMs) of banks.

If you haven’t heard of the NIM before, it’s the profitability metric showing how much a bank makes on its lending compared to the cost of the funding.

This is a very simplified example, but if the bank had $100,000 in customer savings accounts paying a 1% interest rate, and it had lent out $100,000 at an interest rate of 3%, the NIM would be 2%. Experts are expecting bank NIMs to rise in this environment.

However, one warning from the broker Morgans is that higher interest rates could lead to a worsening situation for the loan books and thereby lead to higher arrears.

Bank dividend yields could also appear less attractive to income-focused investors, which may hurt the valuations of ASX 200 bank shares.

RBA review

However, there was one new piece of financial news that appeared today.

According to reporting by the Australian Financial Review, the Australian Treasurer Jim Chalmers is going to appoint a panel of independent experts to review the central bank.

The newspaper reported that the review wais “likely to consider the composition of the RBA board members, the appointment processes, the 2% to 3% inflation target and the joint statement on the conduct of monetary policy between the treasurer and governor”.

The AFR reported that some experts believed the RBA board should have “more professional economists to challenge the governor and deputy governor on technical monetary policy issues”.

Motley Fool contributor Tristan Harrison 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 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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