Are you looking for ways to grow your portfolio in 2023? Look no further than the Australian banking sector! Despite recent market volatility, the country’s major banks are still attractive investments, offering strong dividends and opportunities for growth. In this article, we highlight three ASX bank stocks to consider jumping on in 2023: Westpac, ANZ, and Macquarie Group.
Westpac (WBC)
Westpac has had a rough year, with its shares falling after reporting a 1.0% decline in its 2022 cash profit to $5.276 billion. The bank has cited high inflation and rapidly rising interest rates as major uncertainties facing the company and its clients. However, despite these challenges, Westpac has not yet registered an increase in hardship or stressed assets.
Most parts of Westpac’s result were mostly in line with expectations, but investors were disappointed with the lack of improvement in net interest margins towards the end of the year. Additionally, Westpac raised its cost target from $8 billion to $8.6 billion, citing higher-than-expected cost inflation and regulatory compliance costs.
Despite these challenges, we remain bullish on Westpac’s prospects over the medium term. The bank’s attractive dividend and adjusted cost-out program make it an attractive investment option, although we caution investors to act cautiously and let some of the volatility play out over the near term. We anticipate loan growth to slow, making for challenging market conditions, but we believe the bank’s balance sheet is adequate to handle a moderate pull-back in house prices from here. The real risk to consider is a major housing crisis, which is now a slim but foreseeable risk given rapid rate rises by central banks on both sides of the Tasman. However, we see Westpac being in a position to pay an attractive dividend from 2024 onwards following the partial completion of its cost-out program and avoiding a major property crisis.
ANZ (ANZ)
ANZ is another major Australian bank that has faced headwinds over the past year. We anticipate loan growth to slow, making for challenging market conditions, and while deposits grew 5% across the board, expenses for the half grew 7%, largely due to rising staffing costs. The bank maintains a tier 1 capital ratio of 12.3%, although 0.8 percentage points of this capital came from the capital raise earlier in the year to purchase rival Suncorp.
Despite these challenges, we maintain our bullish rating on ANZ. The bank offers the best value for price paid in the Australian banking sector, and it stands to benefit from rising interest rates if the right trade-off to managing default risks can be mitigated from stringent lending criteria enforced over the recent years, helping the bank maintain a sound loan portfolio and strong balance sheet. While there are concerns regarding slowdowns in the mortgage business and a manageable rise in loan default, these risks appear priced in. Investors who can sit through the inevitable bumps as costs rise and technology implementation takes time ought to be rewarded relative to the other “big four.”
Macquarie Group (MQG)
Finally, we come to Macquarie Group, a bank that we’ve had our eye on for some time. Although the bank has seen its share price fall recently, we believe this presents a buying opportunity. We upgraded Macquarie to a BUY and see value below $170, and on a technical level, we’ve seen support at $165, where it tends to rebound.
Macquarie, like the other four major Aussie banks, is well-capitalized. Additionally, it has a lower exposure to the mortgage market and is sitting on adequate funding from its capital raise in 2021. With a lower exposure to the mortgage market and higher exposure to infrastructure, Macquarie Group is a lower risk proposition than other banks. Plus, its markets exposure business is well-positioned to capitalize in times of high market volatility.
Investing in ASX bank stocks may have its ups and downs, so it’s more important than ever to invest in stable and well-managed companies in the financial sector. Westpac, ANZ, and Macquarie Group are all strong contenders for your investment dollars, each with their own unique strengths and risks. Whether you’re looking for an attractive dividend, a sound loan portfolio, or exposure to infrastructure and markets, these three ASX bank stocks are definitely worth considering in 2023.