Few sectors divide analysts quite like ASX bank shares right now.
Three of the big four carry sell ratings from at least one major broker.
The fourth has a buy rating and a premium price target compared to its current price.
With Commonwealth Bank of Australia (ASX: CBA) reporting on 12 August, the debate about the sector's potential is only going to get more heated.
Image source: Getty Images
The bear case against ASX bank shares
The bears are not questioning the quality of these businesses. They are more so questioning the price.
Morgan Stanley has sell ratings on CBA, National Australia Bank Ltd (ASX: NAB) and Westpac Banking Corp (ASX: WBC).
The broker's CBA target of $125 implied around 26% downside when the note landed in July.
Its NAB and Westpac targets of $34.50 and $31.50 implied 13% to 14% downside.
Jefferies is similarly cautious, holding a sell rating and a $144.40 target on CBA.
The bears all have roughly the same argument
CBA trades on the richest earnings multiple of any major Australian bank, in a market that is both mature and intensely competitive.
Westpac carries the heaviest mortgage exposure of the four, with roughly 69% of its loan book in residential lending.
With the cash rate at 4.35% following three increases through 2026, that risk has heightened.
Higher rates eventually feed through to arrears, and the full effect of this year's tightening has not arrived yet.
The wider point is that these are mature businesses in a mature market, and paying a premium multiple for low single-digit earnings growth leaves very little margin for error.
The bull case for ASX bank shares
Not everyone is bearish on ASX bank shares.
Citi has a buy rating and a $39.25 price target on ANZ Group Holdings Ltd (ASX: ANZ).
That implied roughly 9% upside when the note was published.
ANZ has been the analyst favourite among the majors for much of 2026.
The bank has confirmed it achieved 49% of its $800 million gross cost-savings target for FY26, cost discipline being one of the few levers available when revenue growth is hard to find.
The wider bull case rests on three things.
Australian banks remain exceptionally well capitalised by global standards.
Their fully franked dividends still appeal to income investors, particularly those in lower tax brackets.
And a higher cash rate, while a credit risk over time, also supports net interest margins in the near term.
None of those arguments require earnings to accelerate, which is a large part of their appeal to conservative investors.
What to watch in August
CBA will release its FY26 result and final dividend on 12 August. Its shares are scheduled to trade ex-dividend on 19 August, with payment on or about 29 September.
Bank results rarely surprise on revenue, so the interesting detail will likely be buried in the provisioning and expense lines.
Margins, cost growth and any commentary on credit quality may matter more than the headline profit figure.
Foolish takeaway
The split among brokers is really a disagreement about valuation, not about business quality.
Nobody disputes that these companies are profitable, well-run, systemically important institutions. The argument is more so whether current prices leave any room for something to go wrong.
For income investors already holding ASX bank shares, franked dividends remain a key attraction.
But for anyone considering fresh capital, the bear case deserves serious consideration.
August results will give both camps a great deal more to work with.
