Here’s why ANZ, CBA, NAB, and Westpac share prices are surging

Australian banks are firing on all cylinders and are beating their global peers even as the country’s economy slows.Westpac Banking Corporation (WBC) share price has risen in the last five consecutive days and by over 42.50% this year. Similarly, ANZ Group stock has soared by 22% and is also sitting at its highest point on record. Commercial Bank of Australia (CBA) shares soared by almost 32% while ANZ Group shares are up by 22%. NAB Bank has risen by 30% this year.These banks are outperforming related companies. The closely watched KBW Bank ETF (KBWB) has risen by less than 25% this year.ANZ vs WestPac vs CBA vs NAB vs KBWBAustralia economic weaknessBig Australian banks have done welll this year even as signs showed that the country’s economy was slowing. The most recent data showed that the economic growth softened to 1.1% in the second quarter after rising by 1.6% in the first quarter. This growth rate has been slowing after growing by over 9% in 2021 and analysts expect the slowdown to continue further. Commodities, which are an important part of the Australian economy have been mixed this year. Gold has soared to a record high while commodities like iron ore and coal have retreated because of the Chinese weakness.More economic data has shown that Australians are still dealing with the cost of living crisis as inflation has remained higher than in other countries. The labor market has also softened slightly in the past few months, with the jobless rate being over 4%.RBA interest ratesThe first main reason why these banks have done well despite the economic challenges is that the Reserve Bank of Australia (RBA) has become the most hawkish central bank in the world.The last minutes showed that officials deliberated hiking interest rates in the last meeting, citing the stubbornly high inflation.This was a highly divergent tone considering that most central banks have started to slash interest rates. In the United States, the Fed has hinted that it will start to trim its rates in the next meeting.The European Central Bank (ECB), Bank of England (BoE), and the Swiss National Bank (SNB) have also slashed interest rates. Most of these banks are expected to deliver more cuts this year.In theory, banks benefit when interest rates are high because of the higher Net Interest Margin (NIM). That is the interest rate they make for holding cash or lending minus the rate they offer their depositorsHigher interest rates have unintended consequences though. When rates rise so high, as they are in Australia, many people tend to move their money from banks to money market funds, which pay a higher rate. Data by the country’s statistics bureau shows that the total managed funds rose to A$4.75 trillion in December last year while consolidated assets of managed funds hit A$3.8 trillion.The other unintended consequence of higher rates is that it leads to higher default rates among consumers and companies. Australian banks profits eased in the first halfThese stocks have surged even after the recent results showed that their financial results eased in the first half of the year. CBA, the biggest bank in the country, saw its net profit after tax (NPAT) fall by 8% to A$4.8 billion in the first half. The bank noted that the decline was because of higher operating expenses during the period. Its NIM also retreated slightly to 1.99%.Westpac, the best-performing Australian bank stock, saw its NIM rise to 1.92% in the last quarter as customer deposits jumped by over A$15.4 billion.NAB Bank’s revenue dropped by 3% in the first half of the year while net profit fell by 11% to A$3.9 billion. ANZ’s statutory profit after tax fell by 4% to $3.4 billion.Notably, most of Australia’s biggest banks have a lower CET1 ratio than their global peers. ANZ Bank has the highest rate of 13.5% while NAB has a ratio of 12.5% while Westpac and CBA have 12%. CET ratio is an important number that shows how a bank’s reserves compared to risk-weighted assets.Additionally, there are signs that these banks are seeing strong competition, which explains why most of them have started cuttig interest rates. Just last week, CBA Bank slashed rates for new borrowers as the competition in the mortgage industry tightened.Another risk for Australia’s biggest banks is that they are no longer cheap. CBA has a price-to-book ratio of 3.24 while NAB, Westpac, and ANZ have multiples of 2.0, 1.52, and 1.38, respectively. JP Morgan, a bank known for its fortress balance sheet has a multiple of 2, much lower than that of CBA Bank.Therefore, these banks will likely continue rising in the near term but a pullback cannot be ruled out as some investors start taking profits.The post Here’s why ANZ, CBA, NAB, and Westpac share prices are surging appeared first on Invezz