Today, we have two banking stocks from Australia, Westpac Banking (AU:WBC) and Australia and New Zealand Banking Group Limited (AU:ANZ). These banks have posted higher net interest income and profits due to increased interest rates in the economy.
The Reserve Bank of Australia has been increasing its interest rates since May 2022. After multiple rounds, the cash rate in Australia is at 3.10% as of December 2022. This is the highest the country has seen in the last ten years. Experts expect it to touch somewhere around 3.7% by August of this year.
With higher rates, banks are able to improve their net interest margin, pushing up overall income. This has also pushed the share prices further into the green zone.
While focusing on a particular sector in any market, the TipRanks Stock Comparison tool could be a perfect tool for investors. Here, we have used Top Australia Bank Stocks to pick these banks, as their stock prices grew the most in the last six months.
Let’s discuss these banks in detail.
Westpac Banking Corporation
Westpac is among the leading banking institutions in Australia. It is also one of the oldest banks in Australia.
The bank’s financial performance in 2022 depicted positive momentum, especially in the second half. The net interest income increased by 7% in the second half to AU$8.8 billion and by 2% for the full year of 2022.
For the full year, the net interest margin was down by 17 bps to 1.87%. This was mainly due to lower interest rates and a highly competitive lending market. The analysts feel the higher interest rates will benefit the banks in 2023 and 2024 before they start stabilizing.
Moving forward, the bank remains committed to controlling its costs, which will help it once the interest rate advantage fades away. In 2022, the operating expenses were down by 19% to AU$2.5 billion.
Peter King, the bank’s CEO, said, “We’ve really built liquidity and capital buffers, and the credit portfolio is in very good shape, so we feel like the bank is in a solid position to manage through a tougher environment and help customers.”
Talking about the valuation, Westpac has a P/E ratio of 14.9, as compared to the average of 13.4 of the top five banks in Australia. This makes it a little expensive as an opportunity for investors.
Westpac Share Price Forecast
According to TipRanks’ analyst consensus, Westpac stock has a Moderate Buy rating.
The WBC target price is AU$26.75, which is 12% higher than the current price level.
Australia and New Zealand Banking Group Limited (ANZ)
ANZ is among the top five banks in Australia and the top 50 in the world.
As compared to Westpac, ANZ has a P/E ratio of 10, which is the lowest among its top five peers in Australia. This offers an attractive valuation to investors.
Coming to the financial performance, ANZ posted a 5% increase in its cash profits and a 16% increase in statutory profits in its annual results for 2022. The bank gained its strength back in the home loan sector with a quicker application approval time. The revenues were up by 9.3% to AU$19.7 billion.
The bank anticipates an additional AU$1.5 billion in net interest income in the fiscal year 2023 and an additional AU$3.2 billion in the fiscal year 2025. The total net interest income for ANZ was AU$ 14.9 billion in 2022.
Is ANZ a Good Stock?
ANZ stock has a consensus rating of Hold on TipRanks, based on four Buy, two Hold, and two Sell recommendations.
The ANZ target price is AU$27.02, which is 8.7% above the current price level.
Banks have reaped the benefits of rising interest rates. After more than a decade, these banks are able to earn higher interest income, pushing their earnings.
Experts feel this trend will continue for the next 2-3 years, which could provide great support to their share prices.