NAB, WBC, CBA gain in March quarter; why banking shares rose lately?

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Highlights

  • Banking stocks have performed on a decent note in the past few months.
  • Banks benefited from prospects of rate hikes by the Reserve Bank of Australia (RBA).
  • Rising interest rates are expected to boost profit margins and earnings of banks.

Despite the Australian share market seeing choppy trade in the past few weeks, banking stocks have managed to hold up. ASX-listed banking stocks have been the major drivers for ASX 200 Financials Index (ASX: XFJ) for the three months ended 31 March 2022, which could just gain 3.67% in overall terms. In comparison, the ASX 200 rose 6.39% last quarter.

Banks benefited from prospects of rate hikes by the Reserve Bank of Australia (RBA) and more policy tightening by the US Federal Reserve. In such a scenario, analysts expected domestic banks' margins to return to pre-COVID-19 levels due to interest rate hikes in Australia.

What has happened in the March quarter?

National Australia Bank Ltd (ASX:NAB)

The NAB share price gained 12% to end the March quarter at AU$32.35. Among the major triggers for the share price in the last quarter was the release of the bank’s December quarter earnings. NAB reported 8% higher revenue for the quarter compared to the second half of FY2021’s quarterly average. NAB also announced another AU$2.5 billion off-market buyback.

Westpac Banking Corp (ASX:WBC)

During the March quarter, the Westpac share price advanced nearly 14% to end at AU$24.24. During the quarter under review, Westpac’s unaudited cash earnings increased 74%. The stock gained on earnings for the December quarter and AU$3.5 billion off-market buyback.

Commonwealth Bank of Australia (ASX:CBA)

CBA stock gained 4.72% during the March quarter. The bank announced positive earnings for the 6 months ended 31 December. CBA’s statutory net profit after tax (NPAT) rose 26% over the first half of the year. The share price also advanced on news of an AU$2 billion on-market buyback. The bank sold part of its 10% stake in the Bank of Hangzhou for AU$1.8 billion during the quarter.

While Australia and New Zealand Banking Group Ltd (ASX:ANZ) fell over 30%,  Macquarie Group Ltd (ASX:MQG) declined over 1% in the past quarter.

What to expect going ahead?

Australia and New Zealand Banking Group, Westpac Banking Corp and National Australia Bank are scheduled to report their interim results in May.

Investors may be closely tracking these stocks ahead of their earnings, especially after the February reporting season has ended and a majority of the stocks have gone ex-dividend. The above-mentioned ASX banking shares have historically closed higher in April and March.

What’s up with Macquarie?

There is no price-sensitive news from Macquarie’s side for the past two months. However, there was a report recently stating that the Australian Securities and Investments Commission (ASIC) was initiating legal action against the bank. According to allegations levelled by the ASIC, Macquarie observed: “limited monitoring” of transactions made via one of its systems.

As of 31 December 2021, Macquarie Asset Management reported AU$750.1 billion of assets under management (AUM).

The stock is down over 4% YTD. In the past one year, the stock has risen over 30%.

Why are ASX banking shares rising lately?

While the banks’ mortgage lending business is slightly negatively impacted as home buyers are expected higher finance costs, a higher loan rate scenario may also bode well for banks as the above-mentioned negative impact may be countered by broader loan margins. Rising interest rates are expected to boost profit margins and earnings of the banks.

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