The S&P/ASX 200 Index (ASX: XJO) bank share sector is a competitive space. There are a number of major players, as well as smaller competitors.
Most people have probably heard of Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd (ASX: NAB), Westpac Banking Corp (ASX: WBC) and Australia and New Zealand Banking Group Ltd (ASX: ANZ).
But, how are we supposed to know which bank is better than the others?
There are a number of different things to look at such as the dividend yield, price/earnings (P/E) ratio, price-to-book ratio and so on.
Now that CBA has just revealed its FY23 first quarter, we have some of the most up-to-date information about the banks and their performance.
For a bit of guidance about which ASX 200 bank share may be the best to own, let's have a look at the view of the investment team from the Perennial Value Australian Shares Trust, which has outperformed the S&P/ASX 300 Accumulation Index (ASX: XKOA) by an average of 3.7% per annum over the past two years.
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Banking opinion
The Perennial team noted that in October, its bank holdings outperformed. It was pointed out that the rally started when the Bank of Queensland Limited (ASX: BOQ) said that the benefit from rising interest rates was going to be larger than expected.
Perennial also said that the ANZ result included that benefit as well, showing that credit quality remains "very strong", with no signs of stress "at present" – this is consistent with the "ongoing strength in the Australian economy."
The fund manager said that the revenue environment for the banks is the "best it has been in a very long time". However, margins are "likely to come under pressure again as funding costs rises."
Banks are feeling the pinch of rising costs, with the ANZ result showing that wage expenses are going up.
On top of that, Perennial said that "it is likely that there will be an increase in bad debts from the current very low levels, as interest rate rises flow through the economy."
Which is the best ASX 200 bank share?
The fund manager said that, overall, the trust's holdings represent a neutral position in the banking sector.
However, it does have a larger weighting to NAB which is "performing well operationally and is exposed to the strong growth in business lending."
It also has an overweight position on the Westpac share price because it "has significant upside should its turnaround be successful."
However, it's underweight on the CBA share price because of its "unjustifiable valuation premium" and it called ANZ shares the "weakest franchise".
Recent results
For investors that didn't see the most recent results, CBA said that it generated cash net profit after tax (NPAT) of $2.5 billion, up 2%, with income rising 9% and underlying expenses increasing 4.5%.
In the NAB FY22 result, it grew its statutory net profit by 8.3% to $6.89 billion and cash earnings increased by 8.3% to $7.1 billion.
