ASX 200 bank shares have had a difficult year on the charts, encountering substantial volatility.
Following a strong start to the year in January, the banking basket has travelled largely sideways to date.
As seen in the chart below, the S&P/ASX 200 Banks Index (ASX: XBK) has wormed its way to around a 5% loss in 2022 so far.
Buying opportunities?
Despite the market volatility, and mounting pressure on the financials sector from the recent surge in interest rates, some analysts think selective opportunities remain in the ASX 200 banking space.
However, some experts are warning the market mechanics of the Australian residential mortgage market could create a potentially dire situation.
Analysts at investment bank UBS, led by John Storey, allude to this theme in a recent note to clients. The broker highlights that around $500 billion in fixed-rate mortgages are set to roll over by 2024. That's approximately 25% of the entire Australian mortgage book.
The flood of consumers facing residential interest rates at their highest levels since 2013 may trigger a "battleground" scenario, UBS warns.
In any case, it will create an impending headwind that households must endure, the note said, although the broker is broadly optimistic:
Overall, we are cautious on the impact of weaker housing and interest rates but customers, in our view, can take it.
We are positive on the net interest margin environment, but competition will take some of the edge off likely increases.
Despite this, the "flow-on effects" to small and medium-sized businesses need to be closely examined, it said.
Nevertheless, the broker came in with a string of upgrades this week and believes the trio of Macquarie Group Ltd (ASX: MQG), Westpac Banking Corporation (ASX: WBC), and Bendigo and Adelaide Bank Ltd (ASX: BEN) are well positioned to capitalise on this mortgage activity.
It upgraded the three shares to buys on valuations of $185, $27, and $10 respectively, with each price target representing considerable upside on their current share prices.
What do the numbers say?
In terms of where these shares sit in the ASX 200 banking basket, some numbers are seen below, taken from Refinitiv Eikon data.
Bendigo looks attractively priced at 0.68 times price-to-book (P/B) ratio with a 7.5% company return on equity (ROE).
In addition, USB's picks are all forecast to deliver solid dividend yields looking ahead, according to Refinitiv. Let's check the figures:
| Company Name | P/E | P/Book | Dividend yield | ROE |
| Westpac Banking Corp | 15.75 | 1.07 | 7.9% | 7.4% |
| Australia and New Zealand Banking Group Ltd | 10.72 | 1.09 | 8.4% | 10.9% |
| Commonwealth Bank of Australia | 17.54 | 2.22 | 5.7% | 12.8% |
| National Australia Bank Ltd | 14.81 | 1.56 | 6.6% | 11.1% |
| Bendigo and Adelaide Bank Ltd | 10.50 | 0.68 | 9.3% | 7.5% |
| Bank of Queensland Ltd | 10.85 | 0.68 | 9.1% | 7.9% |
| Macquarie Group Ltd | 12.96 | 2.06 | 4.5% | 18.0% |
A comparison of each bank's share price performance over the last 12 months, relative to the benchmark index, is illustrated below.
