As the central government's relentless rate hikes bring the inflation rate back within the pre-established target range, the Australian banking and financial system continues to be robust and well-positioned to support the economy through more challenging times for individuals and businesses. The banks are well-positioned in terms of capital and liquidity. The low levels of loans over the past year and the banks’ notable profitability growth have been attributed to strong employment and economic activity. In the midst of geopolitical tensions and the direst economic circumstances, investors have had to adjust to the central banks' abrupt hikes in policy rates, which have made the funding markets—basically the wholesale markets—tight at times. Nevertheless, the issuance of bonds by Australian banks has been greatly aided by their excellent credit ratings and the range of available funding options.
In general, it is anticipated that the balance sheets of the banks will continue to withstand the effects of growing interest rates. Profitability has been bolstered in recent years by lending volumes and decreased impairment charges. Through higher earnings on interest rate hedges and holding high-quality liquid assets, higher interest rates have supported net interest margins. ( Reference: Reserve Bank of Australia
Let’s look at the five best ASX banking stocks listed on the Australian stock exchange (ASX). These are as follows:
Note: The market cap and the share price of the selected ASX companies below are mentioned as of 22 January 2024.
National Australia Bank Limited (ASX: NAB)
Market cap: $98.83 billion
CMP: $31.68
• The bank has achieved the most significant improvement in return on equity (ROE) among major banks, demonstrating efficient capital utilization. With collective provisions at 1.47%, NAB takes a proactive approach to risk management, enhancing resilience and ensuring regulatory compliance. The bank's Common Equity Tier 1 (CET1) ratio stands at a robust 12.22%, surpassing industry peers, indicating a strong capital position. NAB has successfully reduced its cost-to-income ratio, enhancing efficiency and profitability.
• Long-term investments and successful strategic execution have led to NAB's outstanding performance. With a strong balance sheet, the bank is ready to support its clients even in the face of an economic slowdown that is expected to coincide with rising cash rates. It is in a good position to manage risks and volatility in the current environment of tightening monetary policy because of its strategic focus on maintaining prudent balance sheet settings.
Kina Securities Limited (ASX: KSL)
Market cap: $225.24 million
CMP: $0.78
In accordance with its 2025 strategic plan, Kina Securities Limited has been performing as expected. The business is steadfast in its commitment to carrying out its strategic plan, which will continue to propel organic growth in the primary banking business, a digital product portfolio, and a market-leading digital customer experience. Corporate responsibility and organizational sustainability have always been the company's main priorities. In order to expand its portfolio and market reach, the company plans to keep up its current course of consistent market growth, improving customer service excellence, digital onboarding and transaction processing, and strategic partnerships.
Virgin Money Uk Plc (ASX: VUK)
Market cap: $1.89 billion
CMP: $2.88
The company expects to achieve the underlying RoTE of c.10% and the statutory RoTE of c.8% in FY2024 on account of the likely strong business growth momentum to continue in FY2024. It also expects sustainable double-digit statutory returns in the medium-term period. FY2024 will account for a steady underlying cost-to-income ratio and keep a target of less than 50% in the medium term. The company expects the cost of risk for FY2024 broadly to be in the range of 30-35 bps.
Bendigo and Adelaide Bank Limited (ASX: BEN)
Market cap: $5.53 billion
CMP: $9.74
BEN has made significant advancements in its strategic efforts in order to add efficiency and balance volume growth and margin management. In doing so, the company has streamlined its operations and offerings as it reduced its number of core banking systems from seven to four and reduced its number of IT applications by 90, as well as moving one-third of them to the cloud. BEN notably still managed to focus on the expansion of its core competencies and improve shareholder returns.
Bank of Queensland Limited (ASX: BOQ)
Market cap: $3.93 billion
CMP: $5.95
• With a variety of revenue streams, including retail banking, business lending, and successful digital initiatives, the Bank of Queensland (BOQ) demonstrates resilience in the face of financial difficulties. The bank's digital strategy has increased deposit balances and broadened its clientele, which has opened the door for future expansion and income generation.
• BOQ has a strong foundation that allows it to effectively navigate economic uncertainties and meet regulatory standards, thanks to its strengthened capital position and improved liquidity metrics.
• The bank places a strong emphasis on operational efficiency. Its dedication to automating processes, cutting expenses, and streamlining operations is in line with strategic objectives and improves financial performance and agility. BOQ's flexibility in responding to changing consumer demands for online banking services shows how responsive it is and sets it up for potential future expansion.
Reference: *All Data has been sourced from Company announcements and Refinitiv, Thomson Reuters
Frequently Asked Questions (F.A.Q)
What are the strengths of the Australian banking system?
The financial system in Australia remains robust and well-positioned to sustain economic activity. Australian banks are highly liquid, profitable, well-capitalized, and subject to strict regulations. They are well-positioned to keep making loans to both small and large domestic businesses and households.
What are the top banks in Australia?
• National Australia Bank Limited (ASX: NAB)
• Judo Capital Holdings Limited (ASX:JDO)
• BSP Financial Group Limited (ASX:BFL)
• Virgin Money Uk Plc (ASX: VUK)
• Bendigo and Adelaide Bank Ltd (ASX: BEN)
What are the Tier 1 banks in Australia?
Tier-I banks include ANZ, CBA, Westpac, and NAB. Comparatively to other banks, Tier 1 banks take on less risk. They typically have the lowest interest rates as a result.
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