The big four ASX 200 bank shares are in the green today, along with the S&P/ASX 200 Index (ASX: XJO).
But top broker Morgan Stanley isn't too confident about the short-term trajectory of bank shares.
As reported in The Australian, the broker has cut its 12-month price target on all of the big four ASX 200 bank shares, and downgraded its rating on two of them.
Let's find out why.
Broker pessimistic about ASX 200 bank shares
Morgan Stanley has cut its rating on National Australia Bank Ltd (ASX: NAB) shares to underweight.
It has also cut Westpac Banking Corp (ASX: WBC) shares to equal weight.
At the same time, the broker has slashed its 12-month price targets on the big four ASX 200 bank shares.
It cut its price target on NAB shares by 9% to $25.30 and cut the target on Westpac shares by 8% to $21.
Morgan Stanley also reduced its price target on ANZ Group Holdings Ltd (ASX: ANZ) shares by 2% to $25.20 and on Commonwealth Bank of Australia (ASX: CBA) shares by 4% to $82.
Morgan Stanley has made the changes because it thinks the outlook on margins is too optimistic, particularly for NAB and Westpac.
Analyst Richard Wiles says:
The benefit of large rate hikes and highly favourable deposit pricing comfortably offset mortgage head-winds and drove average margin expansion of +19bp for the major banks in late 2022.
However, we expect margins to fall by an average of 15bp over the next 18 months as entrenched mortgage discounting, emerging deposit competition and mix shift, and higher wholesale funding costs offset the ongoing tailwind from replicating portfolios.
How are the banks performing in 2023?
As we reported recently, rising interest rates present both pros and cons for bank shares.
On top of that, rumblings in the global banking sector have dampened investors' enthusiasm.
Here's what has happened to the share prices of the big four banks so far in 2023.
- The ANZ share price has ascended 4%
- The Commonwealth Bank share price has slipped 1.5%
- The Westpac share price has fallen 6.7%
- The NAB share price has tumbled 9.3%.
The Reserve Bank has raised interest rates 11 times since May 2022. The cash rate is currently 3.85%.
