Broker UBS is optimistic about a few ASX bank shares and has decided they look undervalued. Banks that have been given the thumbs up include National Australia Bank Ltd (ASX: NAB), Macquarie Group Ltd (ASX: MQG) and Bank of Queensland Ltd (ASX: BOQ).
UBS said that its analysis of the sector indicates that the 2026 outlook for banks is reasonable and supportive of achieving earnings. The market is expecting the banking sector to deliver earnings growth of 5.9%. But, UBS also noted that ASX bank share valuations were around 40% higher than the historical average.
Despite that, UBS is seeing select opportunities in certain names with a significant range of expected returns.
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Top picks of ASX 200 bank shares
UBS thinks that NAB shares, Macquarie shares and BOQ shares are a buy.
The broker thinks that the earnings of these banks could do better than expected with the (RBA) cash interest rate forecast to increase by 50 basis points (50 basis points) in 2026, possibly contributing to a stronger-than-anticipated net interest margin (NIM – lending profitability) performance and revenue growth for major banks, which would outperform what the market expects.
The core earnings of those ASX 200 bank shares may also benefit from higher-than-expected loan growth, while banks are actively managing persistent cost pressures which could grow by around 6% on an underlying basis.
NAB shares
UBS upgraded NAB to a buy with a price target of $47 because of positive EPS revisions and structural growth in business banking.
The broker suggested that 46% of NAB's valuation is tied to its market-leading business and private banking operations, which has defended the bank's profitability, supporting a return on tangible equity (ROTE) of around 12.5%.
NAB is UBS' top pick out of the ASX 200 bank shares.
Macquarie shares
UBS decided to upgrade its rating on Macquarie shares because this reflects its "more constructive take" on Macquarie Asset Management (MAM).
The price target on Macquarie shares has been hiked to $235.
Bank of Queensland shares
UBS decided to change its rating on BOQ shares from a sell to a buy because of the bank's balance sheet optimisation and the broker suggested that risk transfer initiatives to enhance returns have not been priced in.
The broker now has a price target of $7.50 on BOQ shares.
What about competition?
While UBS rates these businesses as a buy, the broker notes that competition could rise in the year ahead. The broker wrote:
We expect competition in the Aussie banking sector to grow further in 2026, particularly in managing deposits, especially if rates rise. Controlling costs…will be critical, with tech spend considered essential. At the same time, wage inflation and shifts in workforce composition are driving staff expenses higher (+5.0%).
That's something to keep an eye on, and it's worthwhile thinking about other opportunities out there that could be even better buys.
