Which is the best ASX bank to buy for your portfolio?

Over $200 billion in loan repayments were deferred by major bank customers in 2020 as COVID-19 ravaged the economy. 

And, there could be worse news for the banks as the pandemic forces the country into recession, inevitably leading to an impact on economic growth, jobs, investment and mortgage defaults.

All of this would suggest, this is not the time to buy bank stocks particularly as they are underperforming the benchmark index – the S&P/ASX 200 Index (ASX: XJO) which is also down.

However, history would suggest otherwise.

Before the Global Financial Crisis in 2008, the Commonwealth Bank (CommBank or CBA) was running at around $60. During the GFC, CBA shares were worth $28. Today CBA is trading at $71, dropping from its high on 14 February this year of $90. Its lowest point came on 23 March, when it dipped to $54. Over the six month period, CBA is down just 10.87 per cent.

How long it takes to hit the $90 mark again (if it even does) remains to be seen, but if we follow a similar trend to the GFC, CommBank will likely rise over time.

When comparing the big four, Westpac is down 23.54 per cent over six months, ANZ is down 21.80 per cent and NAB is down 23.08 per cent.

Westpac may be hit harder over coming weeks as it was revealed that it was underpaying staff and will have to pay $8 million to 8000 employees.

Those who have held bank stocks during this pandemic would be ruing their losses and, depending on how hard the recession hits, there could be further falls to come. However, over the long term (which investments should be), history would remind us that banks come back.

There are several reasons for this. Firstly, they hold strong, asset heavy and highly liquid balance sheets. Secondly, their risks are mitigated. Thirdly, due to regulations and better overall management protocols than in previous crises, the banks were ready for the pandemic and are facilitating the government in trying to turn the economy around.

All of this would suggest ASX bank shares could be a solid long-term buy with strong profitability prospects going forward, although we do urge you to seek professional financial advice if considering these stocks for your portfolio.

What about other banks?

Of the big four banks, it is usually CBA that gets the nod as the safest investment.

However, outside the big four, Macquarie Group is usually the one to watch. 

Macquarie is down just 11.39 per cent over the past six months, but it looks to be on the rise. Its diversified earning streams, means it is less reliant on deposits and mortgages than the big four. It also has a 6.13 per cent dividend yield, contrary to the big four that have cancelled their dividends.

In the contest of the year, this is a well performed. Shares are currently sitting at $121.97 and are currently in the green.

Of the regional banks, Bendigo and Adelaide Bank Ltd is down 27 per cent over the six months, with the bank taking a big COVID-19 hit.

What may save Bendigo is its interest in neobanks (online, internet only or digital bank) through its digital bank arm, Up. At this stage, however, despite the rise of neobanks, it is not one of the strongest investment vehicles.

Meanwhile, Suncorp is struggling to recover, Bank of Queensland looks to be gaining and was only down 12.8 per cent over six months. Interestingly, in the last month it has risen 16.2 per cent. MyState in Tasmania is another that weathered the storm pretty well and is up over the last month 5.7 per cent.

So what should you do?

First, call your advisor. Tell your advisor that you are considering buying bank stocks. That CommBank and Macquarie Group could be okay.  That you read somewhere that former BRW editor Tony Featherstone, believes banks “are the buy of a lifetime”.

Then, wait.

While waiting, look into these investment checklist points:

  • Earnings Growth. Check the net gain in income that a company has over time. …
  • Stability
  • Relative Strength in Industry
  • Debt-to-Equity Ratio
  • Price-to-Earnings Ratio
  • Management
  • Dividends

While it is unlikely Australia will hit a worst case scenario event, the best thing you can do is not rush into buying a stock because you think it has bottomed out. Telstra shareholders did this and the stock continued to fall.

The economy will likely rebound in 2021, giving the stock market more stability. This will be good news for the banks, their share prices and shareholders. 

No matter what bank you choose, take a long-term approach and don’t panic if the price falls. Inevitably, as history shows, banks usually recover.

This update is not financial advice. This article is general news and information.

Home Loans: The comparison rates are based on a secured loan amount of $150,000 and a term of 25 years.

Personal Loans: The comparison rates in this table are based on a loan of $30,000 and a term of 5 years unless otherwise indicated in the product name with^, in which case, the comparison rate is based on a loan of $10,000 and a term of 3 years. The comparison rates are for unsecured personal loans only for the relevant amounts and terms. The comparison rates for car loans and secured personal loans are for secured loans unless indicated otherwise.

WARNING: This comparison rate applies only to the example or examples given. Different amounts and terms will result in different comparison rates. Costs such as redraw fees or early repayment fees, and cost savings such as fee waivers, are not included in the comparison rate but may influence the cost of the loan. Comparison rates are not calculated for revolving credit products.

The products compared in this article are chosen from a range of offers available to us and are not representative of all the products available in the market and influenced by a range of factors including interest rates, product costs and commercial and sponsorship arrangements

InfoChoice compares financial products from 145 banks, credit unions and other financial institutions in Australia. InfoChoice does not compare every product in the market. Some institutions may have a commercial partnership with InfoChoice. Rates are provided by partners and taken from financial institutions websites. We believe all information to be accurate on the date published. InfoChoice strives to update and keep information as accurate as possible.

The information contained on this web site is general in nature and does not take into account your personal situation. Do not interpret the listing order as an endorsement or recommendation from us. You should consider whether the information is appropriate to your needs, and where appropriate, seek professional advice from a financial adviser. If you or someone you know is in financial stress, contact the National Debt Helpline on 1800 007 007.

Don't miss these hot deals

Popular Home loans

Popular Credit Cards