These ASX bank shares are cashing in on new highs today

ASX bank shares continue to dominate the charts in 2024, outpacing the major equity benchmarks by a wide margin.

The fever hasn't cooled in Friday's session, with each of Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), and Bendigo and Adelaide Bank Ltd (ASX: BEN) hitting new highs. Their performance this year is seen in the chart below.

Commonwealth Bank hit $157.79 earlier in the session, whereas Westpac nudged $33.89 before retreating slightly to its current range of $33.76.

Bendigo Bank shares in the meantime hit $13.59 apiece, along with the broader S&PASX 200 Banks Index (ASX: XBK) also hitting record highs. Here's a look at what's behind the momentum and what it means for investors.

What's driving ASX bank shares higher?

ASX bank shares have had one of the better years in their history. The ASX 200 Banks Index has soared by more than 37% this year, outpacing the broader market.

One key driver of this rally has been the rebound in investor loan demand, which grew nearly 30% over the past year, according to the Australian Bureau of Statistics (ABS).

This could indicate a recovering property market, with investors ready to put capital to work in the real estate sector once again.

But the potential uptick in housing activity is balanced by the fact individual banks face ongoing challenges from fierce competition in the mortgage space.

To protect their net interest margins (NIMs), major players like Commonwealth Bank and Westpac are increasingly shifting loans directly through digital platforms, bypassing traditional brokers.

This may or may not put ASX bank shares in a more competitive position to attract the share of wallet from the homebuyer.

A closer look at Bendigo Bank shares

To say Bendigo Bank shares have had a good year would be like saying the Pope isn't a catholic. The stock hit new highs today, climbing nearly 40% since January.

Every dollar invested in Bendigo Bank shares has now returned almost 40 cents in investment return before any tax considerations.

But the bank's FY24 results, released in August, were kind of a mixed bag.

Cash earnings after tax fell about 2.5% to $562 million. Management said this was due to intense competition in its core markets.

Consequently, its NIM fell slightly to 1.90%. ASX bank shares are sensitive to changes in the NIM figure, as it represents a core portion of their profitability.

Shaw and Partners took this info and ran the numbers, resulting in a tempered outlook for Bendigo Bank.

The firm sees limited growth opportunities for the bank in a potentially slowing economy.

With bigger banks like CBA and Westpac boasting deeper pockets, Shaw and Partners recommend investors consider booking some gains at these levels.

What about CBA and Westpac?

Commonwealth Bank shares have continued their upward trajectory in 2024, defying bearish broker ratings.

The stock has rallied in recent weeks, fuelled by solid earnings and potential gains from its stake in payments company Klarna. The bank has a 5.5% stake in the company.

MST Marquee analysts speculate that a listing of Klarna could add $1.8 billion to CBA's coffers if it is valued at $20 billion in the market. Other ASX bank shares don't have this advantage to look forward to.

Despite this, Regal Partners is currently short on Commonwealth Bank stock and is 'happy' to do so.

According to my colleague Bernd, Regal thinks there's a bubble in passive investing, which gives the banking stock an added advantage, given its outsized weighting in major stock indexes.

Westpac, meanwhile, has focused on optimising its operations to be more competitive.

Net profits were down 3% in FY24 to $7 billion. But the bank increased its final dividend by nearly 6% to 76 cents per share.

Investors must like the story here because they continue to bid the stock to new highs.

Foolish takeout

ASX bank shares have delivered impressive returns in 2024, driven by a mix of macroeconomic factors and individual tailwinds.

Experts are still positive on the sector, but of course, the obvious risks remain.

Otherwise, there doesn't appear to be any slowing down of the major bank stocks in November.