ASX 200 bank shares are continuing their strong run today following yesterday's indication that net interest margins (NIMs) may be holding up better than expected.
S&P/ASX 200 Financials (ASX: XFJ) shares are streaking ahead of the market today, up 1.2%.
The financials sector is the leader among the market's 11 sectors by a long shot. The next best sector is S&P/ASX 200 Industrials (ASX: XNJ) but it's only 0.3% in the green.
What's happening with ASX 200 bank shares today?
The Westpac Banking Corp (ASX: WBC) share price is up 2.68% today to $23.01. Yesterday, the shares rose by 3.75% to finish at $22.41.
National Australia Bank Ltd (ASX: NAB) shares are up 2.14% to $30.52. Yesterday they closed at $29.88 — up 1.32%.
The Commonwealth Bank of Australia (ASX: CBA) share price is up 1.99% to $98.21. Yesterday it rose by 2.44% to close at $96.29.
The Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is up 1.88% to $25.22. Yesterday, ANZ shares rose by 3.34% to close at $24.75.
By comparison, the S&P/ASX 200 Index (ASX: XJO) is tracking 0.12% higher.
What's causing the surge in share prices on Thursday?
Yesterday, the Bank of Queensland Ltd (ASX: BOQ) released its full-year FY22 results. These revealed a stronger-than-expected NIM for the final quarter of FY22.
Let's recap.
Firstly, a quick explanation of NIMs. The NIM is the amount of money ASX 200 banks earn from the interest paid by loan holders less the interest paid by the banks to savings deposit holders.
So, the Bank of Queensland reported a final quarter NIM of 1.81% for FY22, which was ahead of forecasts. That's what had everyone excited yesterday and again today, hence the surge in ASX 200 bank shares.
Bank of Queensland is getting the lion's share of the surge, with its share price rising 11.3% yesterday. Today, the shares are up again by 0.40% to $7.62.
Top broker Goldman Sachs explained the NIM result and its relevance:
The highlight of the result was that BOQ's 4Q22 NIM came in at 1.81%, well ahead of the 1.75% 2H22 average, and also our FY23E forecast of 1.78% and Visible Alpha Consensus Data forecast of 1.75%.
As we reported, this is good news for all ASX 200 bank shares. It indicates that other banks are probably recording similarly strong NIMs. Market fear, exit stage left. Investors are jumping into bank shares again.
Three of the big four banks will report their own FY22 full-year results over the next month — ANZ on 27 October, Westpac on 7 November, and NAB on 9 November. Mark the dates.
Brokers upgrade Bank of Queensland shares
As my Fool colleague James wrote this morning, two brokers have delivered their verdict on the Bank of Queensland results.
Goldman Sachs has retained its neutral rating on the Bank of Queensland but upped its 12-month share price target from $8.16 to $8.51.
Goldman said:
We revise our FY23/24E cash EPS by +7.4%/+1.5% … Our EPS changes are driven by i) higher NIMs given a strong 2H22 exit NIM, partially offset by ii) higher expenses, and iii) higher BDDs.
In The Australian, Goldman said the NIM improvement supports the current Bank of Queensland valuation (i.e., its share price), but various headwinds will see it "underperform peers".
Citi retained its buy rating and $8.75 price target on Bank of Queensland shares. Macquarie increased its price target by 7% to $7.50.
What about the other ASX 200 bank shares?
As for the other ASX 200 bank shares, The Australian also reports that JP Morgan has upgraded its near-term outlook for the banking sector.
In a client note, JP Morgan said its changed view reflected "significant near-term interest rate leverage and likely potential net interest margin (NIM) overshoot given slow repricing of deposit products".
JP Morgan analyst Andrew Triggs said:
Bank of Queensland's FY22 result has given us more confidence in these dynamics, with its NIM up 12 basis points quarter-on-quarter in 4Q FY22 and the exit NIM 'well in excess' of 4Q NIM.
JP Morgan upgraded CBA to neutral, saying the stock is pricey but notes the bank "offers the best leverage to rising rates and has the most defensive loan book, in our view".
In order of preference, JP Morgan ranks the big four ASX 200 bank shares as follows: National Australia Bank, ANZ, Westpac, and CBA.
CSLA has also upgraded its ratings to buy on Westpac and accumulate on National Australia Bank.
