From an analysis point of view, one of the advantages of living in a country with a banking oligopoly is you only have to analyse half a dozen banks to have a solid grasp of the whole sector. Of course the hard part is you have to analyse half a dozen banks! Anyone who thinks the task of analysing and valuing a bank is easy should think twice.
Given the tightness of the banking sector, the “Big 4″ regularly compare themselves to each other. Comparisons can usually be found in each bank’s presentation that accompany the half- and full-year results. Of course, each bank will generally just compare a statistic that puts them in the best light, however if you take the time to go through each bank’s presentations you can start to build a fuller picture.
Something all bankers talk about is “cross-selling”. Having a customer is one thing but selling them multiple products is much better and in a slow growth environment, it’s an obvious way for banks to increase revenue. Commonwealth Bank of Australia (CBA.AX) is winning on this front. As at December 2012, CBA was selling 2.9 banking and finance products to each customer, compared with between 2.84 and 2.59 products from its three major peers. CBA also reported that it was leading its peers in Retail and Business customer satisfaction; in the case of Retail the satisfaction level was above 80%.
Australia and New Zealand Banking Group (ANZ.AX) at its recent half year presentation choses to focus on its balance sheet credentials, stating that the ANZ had the lowest structural funding gap of the “Big 4”, with a loan-to-deposit ratio of 128% compared with its peers, which were all between 141% and 148%. The ANZ also highlighted that it was gaining market share in the Traditional Banking and Affluent segments, though it is still a long way behind the leader.
National Australia Bank’s (NAB.AX) first comparison was of the Australian Funding Gap, which is an issue for all domestic banks and when presented as a dollar value isn’t all that insightful. It did allowed NAB to then highlight its superior Household and Business deposit growth compared to its peers.
Finally, at its recent presentation, Westpac Banking Corporation (WBC.AX) chose to focus on its Wealth Division, highlighting a 20.9% wealth penetration compared with its next closest peer with 18.3%. Management also reported that WBC has the lowest expense-to-income of its peers at just 40.6%. This expense-to-income ratio is not only the lowest of the domestic “Big 4” it is also the third lowest of “all banks in developed markets”!
Bank stocks are still providing attractive yields, however it is also important that investors consider whether at current prices they are at risk of overpaying for the stock.
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