3 Banking Sector Stocks to buy – CBA, WBC, ANZ

Stocks’ Details

Commonwealth Bank of Australia

Deposit Growth, Strengthened Balance Sheet Supported CBA in Q1 FY 2019: Commonwealth Bank of Australia (ASX: CBA) ended Q1 FY 2019 with the robust business performance which was very much supported by the strong fundamentals. The bank has managed to maintain decent credit quality, encountered favourable momentum in the deposits and finally witnessed strength in its balance sheet. However, the bank’s net interest margin or NIM were lower in Q1 FY 2019 because of price competition with respect to the home loans and high funding costs.   
        

Operating Income ex. One-off items (Source: Company Reports)

In FY 2018, the operating income of Commonwealth Bank of Australia witnessed the rise of 3.4% on the YoY basis primarily because of increased net interest income thanks to the management with respect to margins as well as volumes. The operating income referred here happens to be the one which is excluding the one-off items. In FY 2018, the bank’s net interest margin stood at 2.15% which implies the YoY rise of 5 basis points because of the asset pricing.

Deployments Towards Compliance is Expected Moving Forward: As depicted by the annual report 2018, Commonwealth Bank of Australia plans to make deployments towards operational risk as well as compliance so that the bank’s governance, processes and systems become robust. Additionally, the bank would also be working towards the data and analytics capabilities which might the bank in terms of the productivity.

The bank’s annual report for 2018 also showcased that they would also be focusing towards the cost base which could support the bank with respect to deployments in innovative tools.    

Stock Recommendation: On the daily chart of Commonwealth Bank of Australia, Moving Average Convergence Divergence or MACD has been applied and default values have been considered. As per the observation, the MACD line is about to cross the signal line. After the crossover, there are expectations that the MACD line would be witnessing uptrend. This might provide bullish momentum to the stock. Based on decent fundamentals and current trading scenario, we maintain our “Buy” rating on the stock at the current market price of A$70.330 per share. 
 

Westpac Banking Corporation

Regulatory Actions, Customer Remediation Poses Challenges for WBC in FY 2018:  As depicted by FY 2018 results presentation, Westpac Banking Corporation (ASX: WBC) happens to possess strong balance sheet. However, in FY 2018, the bank has encountered challenges like customer remediation, increased costs of the funds as well as regulatory pressures. The bank has managed to maintain 10.63% of common equity tier 1 (or CET 1) in FY 2018 which implies the rise of 7 basis points on the YoY basis. However, its CET 1 capital amounted to $45.2 billion in FY 2018 implying a rise of 6% on the YoY basis.


WBC’s Balance Sheet (Source: Company Reports)

Westpac Banking Corporation’s consumer bank division posted cash earnings of $3.14 billion. The division’s expenses witnessed the rise of 5% in FY 2018 on a YoY basis because of the deployments as well as remediation. However, WBC’s business bank division witnessed positive momentum as it encountered favourable movement in the fees and the division’s margins were also managed.

Simplification Would Be the Core Focus Area Moving Forward: As depicted by the FY 2018 media release, Westpac Banking Corporation would be focusing on the platform modernisation, digitisation as well as product simplification.  In the same release, the top management of the bank had reflected positive views about the expected momentum in the Australian economy. However, they added that the economy would also be encountering some economic headwinds moving forward.

The bank plans to would be inclined towards the activities which could help it in improving the services. It would be making investments in the technological space.

Stock Recommendation: Relative Strength Index or RSI has been used on the daily chart of Westpac Banking Corporation and default values have been considered for the purposes. After careful observation, it was noticed that the 14-day RSI has started to rebound from the oversold levels. This is a sign of the bullish momentum and there are expectations that the stock might encounter upward trend.

As a result, we maintain our “Buy” rating on the stock at the current market price of A$24.190 per share.
 

Australia And New Zealand Banking Group Limited

Robust Balance Sheet, Credit Quality Seen in FY 2018: As showcased in the FY 2018 results presentation, Australia and New Zealand Banking Group Limited (ASX: ANZ) managed to maintain robust credit quality and balance sheet. However, the FY 2018 was a tough year for the Australian division. The bank’s common equity tier 1 capital ratio (or CET 1) stood at 11.4% in FY 2018 which implies a rise of 87 basis points YoY. However, the bank’s ROE or return on equity stood at 11% in FY 2018 which reflects the fall of 67 basis points as compared to the previous year. 

ANZ’s CET 1 Ratio (Source: Company Reports)

The top management of the bank had stated that the steps which have been adopted with the focus in the simplification of the business supported the bank with respect to the cost reduction and in terms of remediation as well as capital. The management added that, as a result, the bank happens to be in a robust position to tackle the industry’s challenges. There have been robust obstacles in Australia’s retail banking with respect to the lower borrowing capacity as well as weaker growth in the housing.

New Zealand, Asia and Institutional to Support ANZ Moving Forward: The top management of Australia and New Zealand Banking Group Limited had stated that there could be some headwinds to the growth in revenues with respect to Australia’s retail banking moving forward. The management added the ANZ is the strong position to tap the prospects related to growth which might arise in Zealand, Asia as well as Institutional. 

The bank stated that its international trade exposure coupled with the customer-focused approach, simplification of business, working towards enhancing the position of capital as well as focus on cost base would help it in tackling the challenges.

Stock Recommendation: On the daily chart of Australia and New Zealand Banking Group Limited, Relative Strength Index or RSI has been applied and default values have been considered. After observing carefully, it was noticed that the 14-day RSI has commenced to rebound from the oversold levels which reflects the signs of bullish momentum. Therefore, the stock might encounter upward trend moving forward.
As a result, we maintain our “Buy” rating on the stock at the current market price of A$23.700 per share. 
 

Stock Price Comparative Chart (Source: Thomson Reuters)

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