Some ASX bank shares have been strong performers in the last year. Can they continue that run? The investment bank Macquarie Group Ltd (ASX: MQG) isn't confident about that.
Just look at the performance of the big four ASX bank shares in the past 12 months:
- The Westpac Banking Corp (ASX: WBC) share price has gone up 21%
- The Commonwealth Bank of Australia (ASX: CBA) share price has risen 45%
- The National Australia Bank Ltd (ASX: NAB) share price has risen 9.5%
- The ANZ Group Holdings Ltd (ASX: ANZ) share price has gone up 1.4%
While ANZ's performance has not exactly impressed, the others have been good compared to the 8.4% rise of the S&P/ASX 200 Index (ASX: XJO).
The banking sector is in focus after the latest RBA official cash rate cut. Let's take a look at what Macquarie is thinking about banks.
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Negative risks to earnings
Macquarie revealed in a note that it's concerned that the market is not yet fully factoring in what effect the impact of lower RBA interest rates may have on bank earnings, with earnings per share (EPS) downgrades "likely" as FY26 approaches.
It was also noted that business credit growth has slowed to around 7%, annualised. Macquarie said indicators point to downside risks and suggested growth is going to slow to the mid-single-digits. Business credit growth could be slower in the foreseeable future, compared to an average of 13% over the last three years. Business surveys and new company formation also point towards a slowdown, according to Macquarie.
Due to the underlying earnings trends and the weak revenue outlook, the investment bank remains largely underweight/a sell on ASX bank shares . That means it's generally negative about ASX bank shares. NAB shares is currently Macquarie's preferred exposure in the industry, though it only has a neutral rating on NAB.
Positives to keep in mind
The investment bank did point out that over the last three months, major banks have generally been growing at annualised pace of between 5% to 6%. Westpac is reportedly lagging peers because of the RAMS portfolio run-off, while Bank of Queensland Ltd (ASX: BOQ) continues to shrink its mortgage book. Macquarie then said:
Mortgage growth among the majors have diverged again, with ANZ growing at ~1x system, and CBA/NAB at ~0.8x, while WBC is growing at just 0.2x (adjusting for the RAMS runoff, growth appears to be ~0.5x system, in line with guidance)
Macquarie also noted that business lending is mixed between the banks. CBA, NAB and Westpac are growing faster than the overall system, while ANZ is lagging "meaningfully".
On the savings deposit side of things, Macquarie noted that banks have been willing to reprice deposits "above and beyond" cash rate reductions. The broker noted that all banks, except for CBA have "passed on additional reductions in savings rates, partly offsetting the drag from lower rates."
Macquarie said recent bank feedback suggests there may be more capacity to cut bonus saver base rates. There was reportedly little customer reaction to Westpac's large 120 basis point reduction in April. However, despite that, it still expects lower rates to represent a "drag" on bank margins.
One of the key negatives for ASX bank shares is that they're not able to lend out interest-free deposits (such as transaction accounts) at as high a loan interest rate as at the start of 2025. Time will tell how this dynamic plays out.
