The ANZ Group Holdings Ltd (ASX: ANZ) share price has gone through a fair bit of pain over the last month. Could the ASX bank share be worth buying today?
Since 9 February 2023, it has dropped around 8%. That compares to a drop of 2.7% in the S&P/ASX 200 Index (ASX: XJO).
Commonwealth Bank of Australia (ASX: CBA) shares have fallen even further, dropping 11% in that time.
Investor sentiment about banks has taken a tumble, even though interest rates are expected to keep rising in the coming months.
Indeed, the Reserve Bank of Australia (RBA) leader Dr Lowe said in a statement that "the board expects that further increases in interest rates will be needed over the months ahead to ensure that inflation returns to target and that this period of high inflation is only temporary."
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Bank sector competition going crazy?
One of the main problems for the sector could be lower-than-expected profitability as lenders compete away some of the increased margins they're experiencing. The CBA CEO Matt Comyn said last month:
The home lending market is undergoing a period of extreme change and intense competition.
Cash backs are growing in size and prevalence, and we estimate that banks have deferred costs relating to cash backs of over $1 billion. This figure has increased almost 50% in the past two years, and combined with a substantial increase in commissions over the same period, creates a margin headwind that will flow unevenly across the market.
ANZ had previously said that it expects to make billions more in net interest income over the next few years as its loan book sees fixed interest loans revert to variable loans and higher interest rates.
However, the potential boost to profit may be less than hoped because of the strong competition in the sector. This could be detrimental to the ANZ share price.
The tricky thing for ANZ and others is that if they don't try to compete, they could lose some of the existing borrowers and fail to win new borrowers.
ANZ has already lost some ground in market share terms after having slow loan processing times during the COVID period. It doesn't need another reason to fall behind rivals. The banking division of Macquarie Group Ltd (ASX: MQG) is quickly gaining market share, so that's something else for owners of ANZ shares to keep in mind.
What's the attraction of ANZ shares?
ANZ is currently trying to acquire the banking division of Suncorp Group Ltd (ASX: SUN). I'm not sure how much more this will add to earnings, the integration could prove to be a big distraction.
For me, the two most attractive things about ANZ are its low price/earnings (P/E) ratio and high dividend yield.
According to Commsec, the ANZ share price is valued at 10 times FY23's estimated earnings with a possible grossed-up dividend yield of 9.6%. But, if ANZ doesn't grow earnings then I don't think the share price is going to go anywhere. It's not my preferred pick in the sector, though the dividend yield does seem compelling.
