The big 4 banks play an important role in the Australian economy.
Subsequently, they influence the performance of indexes like the S&P/ASX 200 Index (ASX: XJO) and the returns of many investors' portfolios.
The team at Macquarie has released a new report comparing the big 4 banks.
Largely, the sentiment remains that the macro backdrop remains supportive for banks in the near term. However, the broker sees downside risk to margins, and valuations remain stretched.
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Growth to lift and FOMO returns
According to Monday's report, the Macquarie Macro Strategy team expects growth to recover from a weaker pace in 2025 towards pre-COVID trends in 2026.
It expects the consumer to drive the recovery as rate cuts flow through, while business investment recovers in 2026.
With strong house price growth, improved labour availability, and rate cuts, the outlook for housing construction is improving.
The broker also noted the housing market is accelerating faster than we anticipated, with annualised price growth lifting to 10%, and household expectations for prices lifting to record highs, despite stretched affordability.
With the expansion of the FHBG from 1 October, Macquarie expects the housing market to strengthen further in the months ahead.
This has driven an upgrade in near-term housing credit growth and suggests a favourable backdrop for banks, and non-bank financials.
What does this mean for the big 4 banks?
While bank valuations remain stretched, and there is continued downside risk to margins and earnings, the macro backdrop for banks has improved.
Macquarie said that in the near term, it sees upside risk to consensus earnings from faster credit growth and benign credit quality.
Meanwhile, in the medium term, margin headwinds are likely to offset these tailwinds; they will take time to emerge.
We now see limited downside risk to FY26 earnings, but remain 3-4% below consensus for FY27 earnings. We remain Underweight the banks sector, with ANZ and NAB (both Neutral) remaining our preferred exposures.
Price targets for Australian Banks
Based on this guidance, the team at Macquarie have issued the following ratings for the big 4 banks and other major banks:
- Australia And New Zealand Banking Group (ASX: ANZ) has a neutral with a price target of A$34
- Commonwealth Bank of Australia (ASX: CBA) is rated underperform with a price target of A$106
- National Australia Bank Limited (ASX: NAB) is rated neutral with a price target of A$38
- Westpac Banking Corporation (ASX: WBC) is rated underperform with a price target of A$31.50
- Bendigo and Adelaide Bank Limited (ASX: BEN) is rated underperform with a price target of A$10.75
- Bank of Queensland Limited (ASX: BOQ) is rated underperform with a price target of A$5.90
- Judo Capital Holdings Limited (ASX: JDO) is rated outperform with a price target of A$1.90
Based on these valuations, Judo is the only bank trading below its target price.
