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.

As of June, the RBA has refrained from adjusting its cash rate target for almost half a year, in a sign that the monetary authority may have reached the end of its hawkish policy stance.

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.

While some analysts have extended their timeline for rate cuts from the RBA, with ANZ forecasting that they won't arrive until 2024, the monetary authority will still eventually need to make adjustments in order to avoid recessinoary pressures.

These adjustments should bode well for the Australian economy, reducing financial costs for households and enterprises and increasing business activity.

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.

The lender posted unaudited net profits of $1.5 billion for Q1FY24, for a 6% decline that CEO Peter King imputed to the impact of Notable Items related solely to hedge accounting. Excluding Notable Items, Westpac's net profit for the period was $1.8 billion, in line with the average for the second half of 2023.

Westpac touted strength in its net interest margin (NIM) despite headwinds in the areas of both lending and deposits. NIM excluding Notable Items fell 1 basis point to 1.93 percentage points, while Core NIM fell 4 basis points 1.80 percentage points.

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.'

The bank's share price is up nearly 13% year-to-date, and more than 38% over the past year.

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 Morgans 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 is currently piloting a new financial product that could have a major impact upon Australia's mortgage landscape. The product will only be available to individuals earning over $400,000 situated in 145 of Australia's richest postcodes, in a bid to target the country's wealthiest borrowers.

Perks of the new mortgage product will include interest-only payments and some leeway for customisation by clients.

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.

In February 2024, BEN announced a 13.8% rise in net profits to $282.3 million for the six months ending in December, safely surpassing consensus forecasts of $257 million.

BEN nonetheless faces the challenges of narrowing net interest margins and what its executives have referred to as 'heightened competition across the mortgage portfolio,' putting significant pressure upon its loan book.

The company hopes to boost loan growth by means of digital mortgage products, which account for 7% of BEN's total mortgage portfolio. The lender has entered partnerships with major Australian brands including Qantas Money Home Loans and NRMA Insurance to help drive digital mortgage growth.

Bendigo Bank is also trying to drum up retail business by launching its first major brand campaign in five years, by teaming up with leading creative agency Dig.

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