Insights

Top broker tipping turnaround in ASX big bank profit margins

ASX bank stocks are on fire today! And a prediction by JPMorgan that their profit margins could improve will give them an extra boost.
The post Top broker tipping turnaround in ASX big bank profit margins appeared first on Motley Fool Australia. –

big four banks

ASX bank stocks are on fire today! And a prediction by JPMorgan that their profit margins could improve will give investors an extra reason to get excited.

Growing optimism on news of US President Donald Trump’s improving COVID-19 condition is lifting sentiment.

The S&P/ASX 200 Index (Index:^AXJO) rallied 2.4% in after lunch trade but ASX banks are outperforming.

ASX big banks outperforming

The National Australia Bank Ltd. (ASX: NAB) share price, Westpac Banking Corp (ASX: WBC) share price and Australia and New Zealand Banking GrpLtd (ASX: ANZ) share price are up around 3.7% each.

The Commonwealth Bank of Australia (ASX: CBA) share price is lagging its peers but its 2.7% jump still puts it ahead of the broader market.

ASX bank stocks’ margin outlook improving

JPMorgan delivered extra good news for the big four’s net interest margin (NIM) outlook. Investors have been keenly watching this key profitability measure as bank margins have been under pressure from falling interest rates.

It doesn’t help that the Reserve Bank of Australia is tipped to cut the cash rate again in November to a record low of just 0.1%.

NIM is the difference between the interest banks have to pay for its funds and the interest it can charge borrowers.

One of the biggest profit levers

But at least for September, funding costs have eased for the banks and JPMorgan believes this remains one of the best profit levers for the sector.

“Over the last six months, spreads on savings products and TDs [term deposits] have improved by 38ps and 53bps, respectively,” said the broker.

“We estimate this should provide a meaningful tailwind of 3-6bps [basis points] to major bank 1H21 NIMs.”

Low expectations are a saving grace

This equates to around a 3% increase for the big four. This may not sound like much, but any NIM expansion will be warmly welcomed by investors.

This is because expectations are set low for banks, which have been underperforming the market. The fallout from COVID-19 on jobs and the property market have hammered sentiment towards our biggest mortgage lenders.

Even with today’s big bounce, there’s little good news priced into the sector. Also, I believe banks stocks are underheld by fund managers.

Any excuse to turn positive on banks will trigger a big rally.

Big banks have an upper hand

But banks aren’t out of the woods just yet. JPMorgan believes competition for borrowers is heating up with second-tier lenders cutting rates to win business.

On the other hand, the big banks are better placed to win any war of attrition. The big boys have a distinct advantage over their smaller rivals in securing cheaper funding.

Where to invest $1,000 right now

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for more than eight years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes are the five best ASX stocks for investors to buy right now. These stocks are trading at dirt-cheap prices and Scott thinks they are great buys right now.

See The 5 Stocks

*Returns as of June 30th

More reading

Motley Fool contributor Brendon Lau owns shares of Australia & New Zealand Banking Group Limited, Commonwealth Bank of Australia, National Australia Bank Limited, and Westpac Banking. Connect with me on Twitter @brenlau.

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

The post Top broker tipping turnaround in ASX big bank profit margins appeared first on Motley Fool Australia.

Trade The World Anywhere & Anytime!

Mobile app platform with over 50,000 global listed securities across 12 markets (over 70% global market capitalisation), right from your Android or iOS device.

Integrated with exclusive trading idea and investment analysis tools to help you find actionable insight on virtually every financial instrument across our 12 global markets, to help you optimise your trading strategies.

Refer Your Friends

Tell your friends about Monex and gift them FREE access to our trading tools.

We respect your privacy and will only send this one email notification to your friends. 

Share With Your Friends

Share on facebook
Share on twitter
Share on linkedin

Monex Trading Tools Access and Usage Terms

The Monex Trading Tools (referred to as ‘tools’ hereafter) are available to you inside your client portal;


To activate access to the tools, you must have a verified and approved trading account and have made a deposit of at least AUD $1000.


An active and funded account with a positive trading balance is required to continue to have access to the tools;


Although the tools are available to you indefinitely, Monex Securities may at it’s discretion disable access to the tools in the future;


Monex securities reserves the right to change these terms and conditions from time to time, as it sees fit, without notice.

Important Notice
iOS & Android App - 12 International Markets & Over 70% Global Market Cap. $0 Brokerage On US Trades. Click Here!