ASX 200 bank shares have whipsawed heavily in 2022 and the question now turns to what buying opportunities there may be if any.
The combination of surging interest rates from persistent inflation has wreaked havoc on the banking majors' share prices this year.
Whereas the rising rates are typically a good thing for the financial sector – especially those involved in financing/lending of capital, given the higher net interest margins (NIMs) on offer – this hasn't been the case in 2022.
Can ASX 200 banks curl up this quarter?
There's a wide breadth of sentiment from analysts covering ASX 200 banks.
Investment bank UBS recently uplifted its recommendations on Macquarie Group Ltd (ASX: MQG), Westpac Banking Corporation (ASX: WBC), and Bendigo and Adelaide Bank Ltd (ASX: BEN) in a recent note.
The broker notes there is a large rollover of fixed rate mortgages by 2024 and that this represents around 1 quarter of the entire market.
It warned of an impending 'battleground' mortgage holders will face if ill-prepared for further interest rate hikes.
This, and the fact we are likely heading into a weaker economic outlook. This could mean a slowdown in growth and a hit to corporate earnings, also lending and credit.
As seen in the table below, the performance is mixed in terms of profitability and valuation from the ASX 200 banking majors. Data is taken from each company's financials.
As a basket, this group trades on a 12.8 times price-to-earnings (P/E) ratio, whilst delivering a median 11% return on equity ("ROE").
What also stands out is that, as a combined group, this list of peers looks to be fairly valued at a 1 times price-to-book (P/B) ratio.
What this says for the cluster of shares, we are yet to know. However, investors may seek to lap up some shares at the current prices – especially if there's more clarity on inflation and rates.
| Company Name | P/E | Return on Equity – %, TTM | Debt as % of Equity | Price To Book Value Per Share [P/B] | Net Income Margin – % | Price to Cash Flow per Share, TTM – [P/CF] |
| Macquarie Group Ltd (ASX: MQG) | 12.88 | 18.0% | 487.6% | 2.05 | 35.9% | 13.61 |
| Australia and New Zealand Banking Group Ltd (ASX: ANZ) | 10.75 | 10.9% | 207.9% | 1.09 | 35.2% | 10.96 |
| Commonwealth Bank of Australia (ASX: CBA) | 17.36 | 12.8% | 250.8% | 2.19 | 41.5% | 15.25 |
| National Australia Bank Ltd (ASX: NAB) | 14.73 | 11.1% | 310.2% | 1.55 | 40.2% | 14.39 |
| Westpac Banking Corp (ASX: WBC) | 15.76 | 7.4% | 279.8% | 1.07 | 26.1% | 14.65 |
| Bendigo and Adelaide Bank Ltd (ASX: BEN) | 10.54 | 7.5% | 196.9% | 0.69 | 30.0% | 10.03 |
| Bank of Queensland Limited (ASX: BOQ) | 10.88 | 7.9% | 278.7% | 0.68 | 30.0% | 11.03 |
| Median | 12.88 | 0.11 | 2.79 | 1.09 | 0.35 | 13.61 |
In view of the above table, it does suggest that ASX 200 banks are well positioned to absorb any macroeconomic headwinds that may result in a shock to growth.
In particular, a further pullback to the banking basket above would see it then trade at a discounted P/B ratio below 1, and thus could potentially be undervalued if other avenues stack up.
Already we see the same in Bendigo Bank and also Bank of Queensland Limited (ASX: BOQ). We'll have to see if this converts positively to their share price.
Meanwhile, the broad indices continue to drift sideways in today's trade, as the market continues to price in the coming 12–24 months of economic activity.
