S&P/ASX 200 Index (ASX: XJO) bank shares are among the most widely held equity investments in Australia.
And all of the big four Aussie banks have amply rewarded their shareholders over the years gone by.
But are they a good investment right now?
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What's happening with the big four ASX 200 bank shares?
At the time of writing on Tuesday, all four ASX 200 bank shares are in the green.
Trading in the green has been more the rule than the exception for the banks over the last 12 months, which has seen them race ahead of the benchmark index.
The ASX 200 has gained a healthy 7.3% since this time last year.
Here's how the big banks have performed over this same period:
- Australia and New Zealand Banking Group Ltd (ASX: ANZ) are up 23.8%
- National Australia Bank Ltd (ASX: NAB) shares are up 33.4%
- Westpac Banking Corp (ASX: WBC) shares are up 29.0%
- Commonwealth Bank of Australia (ASX: CBA) shares are up 25.2%
And let's not forget the passive income the banks offer with their twice-yearly dividend payouts.
Atop the share price gains listed above, here's how much the ASX 200 bank shares are yielding at current prices:
- ANZ shares trade on a trailing dividend yield of2%
- NAB shares trade on a trailing dividend yield of 4.8%
- Westpac shares trade on a trailing dividend yield of 5.5%
- CBA shares trade on a trailing dividend yield of 3.7%
That all looks pretty appealing.
But with such strong share price gains already in the bag, a number of analysts are cautioning that the big banks are looking overvalued in the current economic environment.
With a price-to-earnings (P/E) ratio of 20.8 times, CBA leads the pack from a stretched valuation perspective.
What are the experts saying?
The ASX 200 bank shares broadly exceeded consensus expectations recently in terms of their net interest margins (NIMs), a key metric for determining profitability.
Amid less fierce mortgage competition, NIMs were stabilising or even slightly higher than the prior half.
But that's not enough to convince Infinity Asset Management portfolio manager Dominic Mlcek they deserve their current "lofty valuations".
According to Mlcek (courtesy of The Australian):
In our view there wasn't enough to provide a catalyst for a further re-rate higher from here and we do question the lofty valuations and significant outperformance by the big four over the past 12 months.
We're not expecting a similar outcome moving forward.
Regardless of whether the RBA commences rate cuts in 2024 or into 2025, we view this as a negative environment for the banks. Additionally, the banks have flagged that tech costs will likely drive operating expense growth back above inflation.
Despite their solid balance sheets and his expectations that the big four ASX 200 bank shares will maintain their dividends at current levels, he added, "Given the lack of growth outlook in our view, we're maintaining an underweight exposure towards the big four."
Schroders head of Australian equities Martin Conlon also isn't rushing out to buy ASX 200 bank shares.
"The volume growth does look to me to be anaemic at best and profits flat at best," he said.
Conlon added:
We have very indebted consumers already. Getting them more indebted is tricky. Where do you go in Australia, given that you have got a lot of debt against residential property? It doesn't seem healthy for the economy to shove more debt at that…
Unless you believe that they can take their nominal costs backwards, which very few companies have been able to do, then you end up saying it's hard to come up with a picture that's anything other than flat at best for bank profits.
