The share price of many S&P/ASX 200 Index (ASX: XJO) bank shares have gone down over the last few weeks. Hence, is it a good time to buy shares at the moment?
It's interesting that so much is happening this year, but at the same time not surprising – interest rates have risen so much in a short amount of time that the knock-on effects of that are starting to play out.
I think there was a bit of mismanagement at Silicon Valley Bank (SVB), but its collapse was also unlucky – it probably wouldn't have happened if interest rates hadn't gone up so much and there hadn't been a massive withdrawal of depositor funds.
Credit Suisse has been taken over by UBS, which was a sign to me that it needed rescuing.
Will there be another bank failure? It's impossible to say at this stage, we'll know in the coming weeks and months. But, some investors have been selling their (ASX 200) bank shares and limiting that exposure.
Local banks have actually been falling since February 2023 as investors learned that there is intense competition in the banking sector, which may lead to lower lending profits than expected.
However, after this pain, could banks be beaten-up opportunities?
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How much have valuations dropped?
Share prices change every weekday, and every minute when the share market is open. Let's look at the current situation since 14 February 2023, which was the date of the Commonwealth Bank of Australia's (ASX: CBA) FY23 half-year result, and where investors got a lot of insights into the local banking situation.
The CBA share price has fallen 13%.
The National Australia Bank Ltd (ASX: NAB) share price has dropped by 13%.
The Westpac Banking Corp (ASX: WBC) share price has declined 11%.
The ANZ Group Holdings Ltd (ASX: ANZ) share price has dropped around 13%.
The Bank of Queensland Limited (ASX: BOQ) share price has declined around 11%.
The Bendigo and Adelaide Bank Ltd (ASX: BEN) share price has dropped around 13%.
If an investor ignores everything else and just looks at the potential purchase price, we can clearly see that share prices are substantially down from where they were a month and a half ago.
As a shorter-term idea, I'd suggest that most, perhaps all, of them are better value in the short term. But, the ASX 200 bank share prices did fall a bit further in 2022 and dropped a lot further in 2020. So, I wouldn't call this the best opportunity of the 2020s, unless there's a crash. More bank failures could cause that decline, so watch that space.
Which ASX 200 bank share to buy?
If we take a shorter-term approach, I think most banks may be able to deliver outperformance at this level because of the lower starting valuation and higher dividend yield as a result of the share price decline. However, in the medium term, I'm cautious about a normalisation of bank credit provisions and bad debts as households adjust to higher interest rates.
Of the banks I've mentioned, I'd probably prefer to choose some of the larger ones first because of their stronger balance sheets and the fact that I think Australians are less likely to withdraw their money en masse from the big four ASX 200 bank shares.
Of those four, I think the CBA share price is too expensive relative to the others, while ANZ could be distracted by its acquisition of the Suncorp Group Ltd (ASX: SUN) banking operations.
Therefore, I'd choose NAB and Westpac. I think NAB is making great progress toward becoming a high-quality bank under Ross McEwan's leadership, while Westpac is working on cutting costs.
But, I do have to say that Macquarie Group Ltd (ASX: MQG) could be the best ASX 200 bank share to buy after its recent 13.5% drop, in my opinion. I like its global expansion and diversification, which I covered in another article.
