Australia's big 4 banks are core holdings for many investors and as margins come under pressure (with the RBA expected to cut rates lower), it's worth knowing where the smart money is leaning.
In its latest research note, Macquarie remains underweight on the banking sector overall, citing earnings risks and margin compression into FY26.
In fact, Macquarie is expecting modest to negative share price returns from the banks over the next 12 months but if you really had to pick 2 of the Big 4 banks, then read on to find out what Macquarie thinks.
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What Macquarie says about each bank
- ANZ (ASX: ANZ): Rated Neutral, with a price target of $27.50. ANZ's deposit pricing is less aggressive (offering just 3.4% vs peers at ~4.5%), which could support margins short term. But Macquarie warns this may not be sustainable unless it risks losing deposits.
- CBA (ASX: CBA): Rated Underperform, with a $105 price target nearly 40% below the current share price. Macquarie thinks CBA is simply too expensive, trading at nearly 29x forward earnings, with slowing growth and falling margins.
- NAB (ASX: NAB): Also rated Neutral, but a clear standout in business lending, where it's growing almost twice the system rate. Its more diversified loan book and solid deposit performance give it defensive appeal.
- Westpac (ASX: WBC): Rated Underperform, with pressure on both margin and growth. Westpac is underperforming in mortgages and faces continued challenges in earnings momentum.
So, who does Macquarie prefer?
Among the Big Four, Macquarie prefers ANZ and NAB which are both rated Neutral, but flagged as the most attractive relative plays in a tough sector. Both banks are:
- Growing broadly in line with the mortgage system (or better in NAB's case)
- Leaning into business lending, which Macquarie sees as a stronger growth lever than mortgages
- Trading on more reasonable valuation multiples than CBA
The unexpected standout: Judo Bank
While the big four dominate headlines, Macquarie's top-rated bank isn't one of them, it's actually Judo Bank Holdings Ltd (ASX: JDO).
The broker has an Outperform rating and sees approximately 15% upside with its $1.80 price target.
Judo has already hit its FY25 loan growth target of $12.5 billion and continues to benefit from strong SME lending momentum. Macquarie likes its at-scale metrics, improving returns, and believes it's well placed to grow earnings even as margins tighten across the sector.
Foolish takeaway
With margins expected to come under pressure as rate cuts flow through the system, Macquarie thinks investors should tread carefully around the major banks. But for those looking for relative value, ANZ and NAB could offer a better balance of price, growth, and capital management. Judo Bank, whilst smaller, is expected to be the standout performer.
CBA might be the market darling, but right now, Macquarie is betting on more grounded performers.
