It certainly has been a tough month for ASX 200 banks.
The drama involving Silicon Valley Bank and Credit Suisse has shaken investor confidence and led to many investors selling their bank shares.
The good news is that every cloud has a silver lining, which on this occasion is the cheaper prices that investors can pick up bank stocks.
But given the uncertainty in the global banking sector, it's possible that some investors may be wanting to buy only the safest of banks.
So, which big four ASX 200 bank share is the safest at the moment?
Image source: Getty Images
How safe are ASX 200 bank shares?
Firstly, it is worth noting that the Australian banking sector is among the most robust in the world. So, we're going to be looking at arguably the safest of the safe when doing this.
Moving on, to get an idea of which big four bank might be the safest, we can look at metrics that banks provide.
The first is the Common Equity Tier 1 (CET1) ratio, which is essentially a measure of spare cash. It compares the core equity capital of a bank to its risk-weighted assets.
APRA notes that having adequate capital is critical to protect financial institutions' depositors and policyholders. As such, regulators set requirements on minimum capital to ensure financial institutions can absorb unexpected losses in their business.
At present, the big four bank with the highest CET1 ratio is ANZ Group Holdings Ltd (ASX: ANZ), which last reported a ratio of 12.2%. However, it is currently in the process of acquiring the banking operations of Suncorp Group Ltd (ASX: SUN). When adjusting for that acquisition, its CET1 ratio drops to 11% on a pro forma basis.
So, Commonwealth Bank of Australia (ASX: CBA) and its CET1 ratio of 11.4% may be the true winner here.
The good news is that the other big four ASX 200 bank shares are not far behind. National Australia Bank Ltd (ASX: NAB) has a CET1 ratio of 11.3% and Westpac Banking Corp (ASX: WBC) has a CET1 ratio of 11.13%.
Importantly, all are comfortably ahead of APRA's requirements.
Anything else?
Another couple of metrics of note are the net stable funding ratio (NSFR) and the liquidity coverage ratio (LCR). The International Bank of Settlements defines these liquidity ratios as the following:
The LCR is designed to ensure that banks hold a sufficient reserve of high-quality liquid assets (HQLA) to allow them to survive a period of significant liquidity stress lasting 30 calendar days. The NSFR is defined as the amount of available stable funding relative to the amount of required stable funding. This ratio should be equal to at least 100% on an ongoing basis.
Leading the way with these liquidity metrics is Westpac. The combination of its ratios edges out Commonwealth Bank by one percentage point.
At the last count, Westpac had an LCR of 122% and an NSFR of 139%. Whereas Commonwealth Bank has ratios of 131% and 129%, respectively.
Next in line was NAB with an LCR of 134% and an NSFR of 118%. In last place, but well above required liquidity levels is ANZ with an LCR of 125.7% and an NSFR of 119.1%.
The winner
All in all, based on the above, it would be hard to argue against CBA being the safest ASX 200 bank share.
Though, with its shares trading at a significant premium to the rest of the big four, investors may get more bang for their buck with Westpac. As covered here, Goldman Sachs believes its shares are very cheap at current levels.
