We're in the final week of earnings season for ASX shares that have a half-year or full-year reporting period that ends with June 2025. Analysts from Macquarie have looked over the major ASX bank shares to see which one looks like the most compelling investment.
It remains to be seen if there are any other lessons to be learned from the companies still to report this week. But, we learned a lot about the state of the Australian economy, demand for credit, the financial health of households and the performance of the major bank.
The analyst team revealed which bank they prefer and what they thought of the results.
Mostly better than expected
Macquarie said that the August results across the major banks were "generally better than expected".
While Commonwealth Bank of Australia (ASX: CBA) met the expectations of analysts, market expectations were "elevated" and it was arguably priced for beating expectations, which wasn't delivered, according to Macquarie.
Macquarie said that both National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC) delivered "solid updates" with reported margins "well ahead of expectations", though these were largely underpinned by "temporary factors".
The broker also said that credit quality was "generally better" but capital generation was softer, reinforcing Macquarie's view on dividend cuts. Apart from NAB, Macquarie highlighted lower-than-expected impairment charges and improving arrears/non-performing loan trends. Non-performing mortgages "generally declined" and "should improve further with rate cuts and rising house prices". NAB did highlight "early signs of stabilisation" according to Macquarie.
However, the analysts did say that ASX bank share quarterly numbers are volatile and small changes can be amplified. That's why it likes to compare results on a half year basis. Based on that, underlying margins improved by 1 basis point (0.01%) for CBA and NAB, but were 3 basis points lower for Westpac.
Macquarie noted that CBA and NAB delivered flat pre-provision operating profit, while Westpac "lagged", largely due to a soft second quarter of FY25. This reinforced Macquarie's view that the Westpac share price reaction after the FY25 third quarter was "overdone", with NAB shares now being more attractive.
While the ANZ Group Holdings Ltd (ASX: ANZ) trading update provided limited insight on earnings, its ASX bank share peer results suggest better margin trends and markets income.
Which ASX bank share is Macquarie's best pick?
Macquarie said that while bank margins were better than expected, it was partly driven by temporary factors which are unlikely to be sustained.
Expected continued rate cuts, fading replicating portfolio benefits and continued lending and deposit competition are "likely" to see margins fall by between 5 basis points to 7 basis points (0.05% to 0.07%).
Macquarie concluded:
We continue to see downside risk to earnings in FY26 and are 2-3% below consensus on an underlying basis. While we see downside to all banks, we see the most downside to WBC (see Dare to be different), following upward revisions, and the least for NAB. NAB and ANZ remain our preferred exposures within the bank sector.
Therefore, NAB shares is the most appealing ASX bank share to Macquarie.
