Better ASX bank buy: ANZ or NAB shares?

Even though the US and Europe have seen troubles in their banking sector, the major ASX banks have been going gangbusters.

The ANZ Group Holdings Ltd (ASX: ANZ) share price, for example, has rocketed 22.5% since late March last year, and National Australia Bank Ltd (ASX: NAB) has lifted more than 27% since June.

So, right now, which is the better buy?

Let’s break it down:

ANZ vs NAB shares

Firstly, let’s compare the dividends.

ANZ hands out a better dividend yield of 6.4% but it is only 56% franked. While NAB shares currently pay out 5.2%, they are fully franked. 

So ultimately there is not a huge difference on that metric.

In the 2023 financial year that ended September, ANZ made $7 billion net profit on 1.7% net interest margin (NIM). NAB managed $7.4 billion on 1.5% NIM.

Again, not much in it.

What do the experts think?

According to CMC Invest, a lukewarm 6 out of 17 analysts rate NAB shares as a buy. ANZ’s endorsement rate is only marginally better with 7 buy ratings from 16 analysts.

It’s a tough choice.

Do you even have to buy a bank?

Perhaps the bigger question is whether it is currently worth buying bank shares at all.

The analysts at VanEck recently pointed out that “the rally in bank [stock] prices has stretched their valuations”. 

“Australia’s banks, when compared globally, are also the most expensive in the developed world by 12-month forward price to earnings and price to book,” they said on the VanEck blog.

“While Australia’s prospects for a soft landing have improved for 2024, the market seems to be pricing a dream scenario for the banks despite the risks of increased mortgage stress in a prolonged higher interest rate environment.”

Also, the banking sector can be irrationally competitive.

The VanEck memo reminded investors that only a few months ago, Australian banks waged a vicious home loan price war against each other. 

This ate into their NIMs at a time when interest rates had increased 12 times in just over a year.

“Each of Australia’s ‘Big 4’ banks face continuing headwinds in 2024. 

“A subdued economic outlook and potential RBA rate cuts could see the Big 4 banks’ net interest margins continue to deteriorate.”

So which is the better bank buy? 

Maybe neither.

The post Better ASX bank buy: ANZ or NAB shares? appeared first on The Motley Fool Australia.

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Motley Fool contributor Tony Yoo has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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