This morning, the Reserve Bank of Australia (RBA) raised the cash rate again by 25 basis points to reach 3.1%. Today’s rate hike is the eighth in a row since May, with the aim of curbing record-high inflation.
Furthermore, the RBA has warned of increasing rate hikes in the future, with the next RBA board meeting scheduled for February 7, 2023. The RBA board believes that along with macroeconomic factors, a demand-supply imbalance is playing a role in keeping inflation high. And hence, lowering consumption levels is a key way to control inflation.
Commenting on the rate hike, Governor Philip Lowe said, “Inflation in Australia is too high, at 6.9% over the year to October… The size and timing of future interest rate increases will continue to be determined by the incoming data and the board’s assessment of the outlook for inflation and the labour market.”
Shares of major Australian banks are trending relatively flat following the news. Commonwealth Bank of Australia (AU:CBA) is down 0.15% at AU$106.79 and National Australia Bank Limited (AU:NAB) stock is down 0.48% at AU$31.11, at the time of writing. Meanwhile, Westpac Banking Corporation (AU:WBC) is trending relatively higher by 0.96% at AU$23.90 at the last check.
With the above points in mind, let’s take a closer look at which of these banks is expected to perform well in the year 2023.
Commonwealth Bank of Australia (AU:CBA)
CommBank is Australia’s largest bank, with operations spanning Australia, New Zealand, and Asia and a deep focus on traditional banking operations. Year to date, CBA stock has gained 8.5% vis-à-vis gaining 11.3% in the past three months.
Is CBA a Good Stock?
On TipRanks, CBA stock has a Moderate Sell consensus rating based on four Holds and seven Sells. The average Commonwealth Bank of Australia stock prediction of AU$94.93 implies 10.8% downside potential to current levels. CBA stock pays an annual dividend of AU$0.79 per share, reflecting a yield of 3.6%.
National Australia Bank Limited (AU:NAB)
National Australia Bank is one of the four largest banks in Australia. NAB offers a wide array of services including banking, credit cards, leasing, housing and general finance, international banking, investment banking, wealth management, funds management and custodian, trustee, and nominee services. NAB stock has gained 12% so far this year.
Is National Australia Bank a Good Investment?
On TipRanks, NAB stock has a Moderate Buy consensus rating based on seven Buys, three Holds, and one Sell. Also, the average National Australia Bank price target of AU$32.69 implies 5.2% upside potential to current levels. Further, NAB pays a semi-annual dividend of AU$0.78 per share, reflecting a yield of 5.02%.
Westpac Banking Corporation (AU:WBC)
Australia’s oldest and one of the largest four banks, Westpac offers consumer and business banking solutions alongside wealth and insurance services to consumers, corporates, and institutional customers. Year to date, WBC stock has gained 15.6%.
What is the Forecast for Westpac Shares?
Westpac Banking stock has a Moderate Buy consensus rating on TipRanks. This is based on five Buys, three Holds, and one Sell rating. The average Westpac price forecast of AU$25.50 implies 7.6% upside potential to current levels. Additionally, WBC pays a semi-annual dividend of AU$0.64 per share, implying a yield of 5.56%.
Ending Thoughts
Australian bank stocks are earning higher net interest margins (NIM) thanks to steadily increasing interest rates. However, record-high inflation also drags down consumer spending power. Having said that, the latest numbers from the Australian Bureau of Statistics shows that the unemployment rate fell to 3.4% as of October end. This is a good sign for banks, as it means that loan defaults will be lower.
Amongst the three banks, Westpac Banking Corp. seems to be the most preferred currently. WBC boasts a “Perfect 10” score on the TipRanks Smart Score Rating System, indicating that there is a high chance that Westpac will outperform market expectations. Bloggers, analysts, and corporate insiders are bullish about WBC. Also, its dividend yield and 12-month price target potential are the highest among the three, making it a lucrative investment choice.
To learn more about the Top Australian bank stocks, you can use the TipRanks Stock Comparison tool for Australian stocks.
