ASX 200 bank shares have enjoyed robust shareholder returns ranging from 30% to 45% over the past year.
Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC) and National Australia Bank Ltd (ASX: NAB) all notched respective gains following a strong show of earnings. Meanwhile, ANZ Group Holdings Ltd (ASX: ANZ) had a similar run.
Despite this, the big four banks may not have much room to grow into their currently elevated share prices, according to Macquarie analysts.
And the fact of the matter is the banking majors are all trading at or near six-month highs. So, is now a good time to buy ASX 200 bank shares? Here's a closer look.
Macquarie weary on ASX 200 bank growth
Macquarie analysts caution that ASX 200 bank shares may struggle to grow into their elevated multiples over the next few years.
According to The Australian, Macquarie says visibility for the sector is low as pressures on earnings mount. According to the reporting, the firm said:
Looking forward, we do not see a clear path for underlying profitability to improve meaningfully from a top-down and divisional bottom-up perspective.
We note that banks' current returns are broadly in the middle of their 10-year average ranges. As a result, we see limited scope for banks to grow into their elevated multiples
The broker notes that, despite each of the banks delivering double-digit total shareholder returns over the past year, their earnings have declined, while multiples have expanded "to a 15-30% relative premium [in price-to-earnings ratio (P/E)] versus five-year historical averages".
Macquarie also observes that banks are currently experiencing one of the lowest bad debt periods on record, which may not support an earnings recovery in the medium term.
In H1 FY24, the banking majors booked a total of $1.21 billion in impairment charges, a 13% decrease from the prior corresponding period.
Despite this, bank share prices have continued to rise. But further growth from here could be a challenge, Macquarie says:
While multiple expansions often precede the earnings growth phase, this is an improbable outcome, in our view. Periods where the earnings subsequently lifted to support rallying share prices were generally characterised by normalising credit losses following an impairment cycle
Banks were strong in FY24
ASX 200 banks showed strong returns on the charts, and the fundamentals remained robust throughout the year.
Commonwealth Bank shares were up 27% in FY24 as the company reported half-yearly profits of $13.7 billion. According to my colleague James, growth softened towards the end of the year, with a 1% decline in earnings reported for its Q3 FY24 numbers.
Westpac shares gained 30% in FY24, driven by general market strength and positive operating results.
The bank's half-year results in May showed a 16% decrease in net profit to $3.3 billion, yet investors welcomed the 7.1% increase in the interim dividend to 75 cents per share, alongside a fully franked special dividend of 15 cents per share.
Meanwhile, NAB shareholders must have been happy, as the bank delivered a massive return in FY24. According to my colleague Sebastian, NAB shares started the year at $26.37 each and closed at $36.23, a capital gain of 37.39%.
Including dividends, investors enjoyed a total yield of 6.33%, resulting in a 43.7% total gain.
Foolish takeaway
ASX 200 bank shares have delivered impressive returns in the past year, but analysts warn that their current valuations may be too high. Remember to conduct your own research and consider any long-term goals before making any investment decisions.
