4 of the top ASX-listed banks to watch

The outlook for Australia's banking stocks

The Reserve Bank of Australia (RBA) has shown signs that it could soon start to rescind its hawkish stance on monetary policy as inflation gradually eases.

At its inaugural board meeting for 2024 held on 6 February, the RBA announced that it would keep the benchmark cash rate unchanged for the month The move marks the second consecutive board meeting of the RBA that has kept the cash rate steady.

The cash rate target currently stands at its highest level in over a decade at 4.35 percent, following a run of 13 rate hikes by the RBA intended to break the back of rampant inflation.

Leading analysts now anticipate as many as two interest rate cuts in 2024, based on recent signals from the RBA including its quarterly Statement on Monetary Policy issued in February.

All four of the big four banks in Australia believe the cash rate has hit a peak, anticipating the start of cuts by as early as the second half of this year.

Westpac and CommBank forecast a 25 basis point cut in September, while NAB and ANZ anticipate the start of reductions to arrive in November.

These interest rate cuts could bode well for the Australian economy, reducing financial costs for households and enterprises and increasing transaction levels.

They could also be highly favourable for the banking sector, given the pivotal role it plays in financing the investment and business activities of the Australian economy. If Australian consumers and businesses start to take out more loans in response to reduced interest rates, depository institutions could reap the benefits of higher turnover and post gains in revenue.

The top four ASX-listed bank stocks to watch

Here is a list of four of the top ASX-listed stocks in the banking sector for investors to consider if they're optimistic about the impact of rising interest rates on the bottom line of lenders:

1. Westpac Banking Group (ASX: WBC)

2. National Australia Bank (ASX: NAB)

3. ANZ Group Holdings (ASX: ANZ)

4. Bendigo and Adelaide Bank (ASX: BEN)

Westpac Banking Group (ASX: WBC)

Sydney-based Westpac Banking Corp has its origins in the first bank founded in Australia - the Bank of New South Wales (BNSW) that was established in 1817. BNSW expanded into the rest of Australia as well as Fiji and Papua New Guinea during the century after its founding. Since its transformation into Westpac, the bank has amassed over 14 million customers globally and a staff team of more than 40,000 people.

Westpac's latest quarterly update contained some unfortunate figures, with core NIM dropping 0.04 percentage points from the second half of 2023 to 1.80%, and net profits falling 6% to $1.5 billion.

The figures failed to sink the company's share price, however, given investors had likely priced in expectations of a lacklustre performance amidst trying times for the Australian economy.

Westpac's share price could also benefit from the company's share buyback plans, which are currently only 31% complete. The bank's purchase of its own shares will likely support prices by reducing the supply of these securities.

National Australia Bank (ASX: NAB)

Melbourne-headquartered National Australia Bank Ltd has one of the most extensive overseas networks out of the big four Australian banks, with offices in China, North America and Europe.

NAB has also recently made bold forays into the fintech sector, announcing at the start of 2021 that it would acquire neobank 86 400, as well as unveiling cryptocurrency ambitions in January 2023 with plans to create the AUDN stablecoin on the Ethereum network.

Morgans considers NAB to be the 'leading SME relationship banking franchise,' while also highlighting 'meaningful improvement in ROE that is in excess of cost of equity' alongside 'attractive yield and buyback.'

ANZ Group Holdings (ASX: ANZ)

Melbourne-headquartered Australia & New Zealand Banking Group Ltd has its origins in two of Australia's most venerable financial institutions - the Bank of Australasia and Union Bank of Australia, established in 1835 and 1837 respectively, well over a century prior to their merger into ANZ in 1951. As of 2023, ANZ is Australia's second-largest bank in terms of total assets.

Analysts from Moragns point out that ANZ has recently seen growth in its market share for loans and deposits and has the lowest level of exposure to low-return fixed-rate loans amongst Australia's big four banks. Morgans also looks favourably upon ANZ's diversification into both US dollar assets and the New Zealand economy.

ANZ has paved the way for further expansion in its home market, obtaining approval for the acquisition of the banking operations of ASX-listed Suncorp Group Ltd from the Australian Competition Tribunal.

Bendigo and Adelaide Bank (ASX: BEN)

BEN was formed via the merger of Bendigo Bank and Adelaide Bank in November 2007, resulting in the creation of a new lender with nearly 900 outlets throughout Australia.

Headquartered in the Victorian regional centre of Bendigo, BEN has a major office in Adelaide alongside key offices in Melbourne and Queensland's Ipswich. Its presence is primarily focused on the states of Victoria and Queensland.

In August, BEN announced that it would increase its dividend to A$0.32, taking the annual payment to 6.9% of the stock price, which is safely above the sector average.

Data from S&P Global Market Intelligence indicates that over the three years to August 2023, BEN stocks saw a rise of 27.4%, compared to an increase in the S&P/ASX 200 Index of 19.2%.

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