What’s the outlook for ASX 200 bank shares in October?

Like most sectors on the share market, S&P/ASX 200 Index (ASX: XJO) bank shares have been hurting recently.

Since the high in August, the Commonwealth Bank of Australia (ASX: CBA) share price is down around 10%, the National Australia Bank Ltd (ASX: NAB) share price is down around 7%, the Westpac Banking Corp (ASX: WBC) share price is down 7%, and the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price is down 4%.

It’s a similar story for names like Bank of Queensland Ltd (ASX: BOQ) and Bendigo and Adelaide Bank Ltd (ASX: BEN), though Bendigo Bank is down 25% after a plunge following the release of its FY22 report.

With all that doom and gloom from the past few weeks, how are things shaping up for October?

Big profits expected

The big banks of ANZ, NAB and Westpac will see their financial year come to a close, with the year end being 30 September. They are expected to report at the end of October and at the start of November.

Banks typically earn billions of profit. Analysts are expecting that the recent interest rate hikes by the Reserve Bank of Australia (RBA) – and the passing on of those interest rates to borrowers – will show an increase in the net interest margin (NIM) for the ASX 200 bank shares.

The NIM shows how much profit a bank is making on its lending compared to the cost of the funding of that loan (which can come from sources like savings accounts).

Higher interest rates are being passed on to borrowers, but savers aren’t seeing the same scale of increases since the start of the interest rate rises a few weeks ago.

The Australian quoted WAM Leaders Ltd (ASX: WLE) lead portfolio manager Matthew Haupt who said:

Margins should be really good because of all the interest rate hikes coming through. The market has already discounted a lot of the impacts that will come through from the interest rate hikes.

Everyone is trying to guess direction, which gets back to what (Reserve Bank) governor Phil Lowe does. How hard he goes and whether they drive us into a deep recession or whether they pause… the biggest concern at the moment is the macro environment and the Australian housing market – that’s how investors are thinking about it.

The newspaper reported that WAM Leaders expects the cash rate to peak at 3.5% and that rate hikes will see the rise of house prices during the pandemic “completely reversed”.

On rising costs for ASX 200 bank shares, Haupt said:

It looks like they are all going to cop at least a 5% cost increase on wages, and you’d expect that Westpac would have to walk away from their target.

Latest WAM Leaders holdings

While investment allocations can change, at the end of August 2022, WAM Leaders owned CBA and NAB shares in its top 20 holdings. However, it did not own ANZ or Westpac shares. This may speak to where the Wilson Asset Management team is, or was, seeing an opportunity in the ASX 200 bank shares sector.

The post What’s the outlook for ASX 200 bank shares in October? appeared first on The Motley Fool Australia.

More reading

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• 5 things to watch on the ASX 200 on Wednesday
• Why did the Macquarie share price trail the other ASX 200 banks today?
• Analysts name 2 ASX dividend shares to buy today
• Does ANZ really have the best profit margins of the big four bank shares?

Motley Fool contributor Tristan Harrison 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 positions in and has recommended Bendigo and Adelaide Bank Limited. The Motley Fool Australia has recommended Westpac Banking Corporation. 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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