ASX 200 bank shares are steamrolling the market in 2024, with the Big Four banks regularly setting new share price milestones. Last week, three of them achieved just that, showcasing their market dominance.
In a recent update, Blackwattle's Large Cap Quality Fund portfolio managers, Ray David and Joe Koh, shed light on why Australian bank stocks are outpacing their global counterparts.
Recent Milestones of the Big Four
National Australia Bank Ltd (ASX: NAB)
The NAB share price soared to a nine-year high of $38.08. The bank's ongoing share buyback programme, which began in August 2023, reported the purchase of 406,899 shares yesterday. So far, NAB has bought back nearly 52.74 million shares, with the programme set to conclude on May 1, 2025.
Westpac Banking Corp (ASX: WBC)
Westpac shares hit a new 52-week high of $28.65, a level unseen since November 2019. Their buyback programme, initiated in November, saw the purchase of 265,730 shares yesterday, totalling 47.36 million shares so far. This programme is scheduled to end this November.
ANZ Group Holdings Ltd (ASX: ANZ)
ANZ shares reached a seven-year high at $30.23. The bank’s share buyback programme, which started in May, bought 727,540 shares yesterday, accumulating a total of 4.61 million shares to date. The buyback will continue until May next year.
Commonwealth Bank of Australia (ASX: CBA)
Australia's largest bank, Commonwealth Bank, recently surpassed BHP Group Ltd. (ASX: BHP) to become the biggest company by market capitalisation on the ASX 200. CBA shares peaked at $134.25 on July 17, resetting their all-time high once again.
Reasons Behind ASX 200 Banks' Outperformance
Ray David and Joe Koh attribute the outperformance of Australian bank shares to two primary factors: optimism around low bad debt levels and ongoing share buybacks.
- Optimism Around Low Bad Debt Levels
David and Koh highlight that Australian banks benefit from optimism that bad debts will remain at historically low levels. This is in stark contrast to the experiences of banks in the UK and Canada, where concerns over rising bad debt levels and weak economic conditions prevail. Despite minimal bad debt levels in Australia, savings rates have dropped, and credit card debt is rising. For bad debts to stay low, interest rate cuts may be necessary; otherwise, bank earnings could face pressure.
- Share Buybacks
The ongoing share buybacks are another significant driver of the banks' performance. As mentioned, three of the Big Four ASX 200 banks are actively engaged in buyback programmes. These buybacks reduce the number of outstanding shares, effectively increasing the value of the remaining shares and providing a direct return to shareholders.
- Australian Housing Market and Migration
Skyrocketing house prices in Australia continue to bolster mortgage holders' wealth, creating a buffer against economic fluctuations. Record migration rates and a prolonged housing scarcity, which raise property values and help the banking industry, reinforce this wealth effect.
Comparative Performance
David and Koh point to Commonwealth Bank (CBA) as a prime example of this outperformance. For the year, CBA delivered a 32% return to investors, significantly higher than the ASX 200's 12%. This outperformance was driven entirely by the price-to-earnings ratio (PER) increasing from 17x to 22x. In comparison, JP Morgan (JPM) and Lloyds Banking Group (LLOY) have PERs of 12.8x and 9.0x, respectively, making CBA one of the most expensive banks globally.
The ASX 200 bank shares' remarkable performance in 2024 is a testament to the strength of Australia's banking sector. Factors such as low bad debt levels, strategic share buybacks, and a robust housing market are propelling these banks to new heights, setting them apart from their global counterparts. As long as these conditions persist, Australian bank shares are likely to continue their upward trajectory, delivering strong returns for investors.
