Australia's property market seems to be a sure beat. Investors and homeowners could have potentially set themselves up for life if they bought one or two houses two decades ago. Even still, it now seems we can expect more of the same.
However what many home owners and investors have potentially overlooked during all those renovations, rates payments and other management fees, is that Australian banks – the businesses that have equally benefitted from more property purchases – have also risen in spectacular fashion in the past 20 years.
Australia's big four banks each provide a unique investment strategy. For example, Commonwealth Bank (ASX: CBA) is focused on developing technology and is heavily leveraged in the domestic mortgage market, with 26.8% of all loans under its belt. Westpac (ASX: WBC), which isn't growing loans nearly as fast as the other banks, controls 24.7%.
If you're betting on a property boom, however, you might be interested in knowing which banks are growing their loan portfolios the quickest. Over the past year the banks with the fastest growing loan books (expressed as percentage) were ANZ (ASX: ANZ), which grew its mortgage book by 7.1%, and NAB (ASX: NAB), which pushed out 6.9% more loans.
Obviously it has to be recognised that ANZ and NAB are coming off lower bases than their larger counterparts but, as investors, were interested in growth stories.
NAB is on the road to recovery after years of volatile earnings, largely stemming from its poorly performing UK assets which felt the shockwaves of a slow recovery in Europe after the GFC. Domestically, its business bank derives a substantial part of its earnings and it occupies only 16.3% market share of mortgages – meaning it has got plenty of room for long-term growth.
Unlike NAB, ANZ is going from strength to strength. It's now investing in technology, growing in Asian markets and is swooping in on would-be home owners here in Australia. Its ability to leverage long term success (or failure) in Asia with operations domestically will help it not only stabilize earnings but grow its presence in the entire Asia Pacific region. It has a 14.8% market share of Australian mortgages.
Foolish takeaway
The big four banks are in prime position to take advantage of an ongoing demand for Australian property. However rising average loan-to-valuation ratios are not a healthy sign for long time earnings because they have a higher chance of default when interest's rates inevitably rise — leading to more bad debts.
Bank stocks have performed exceptionally well in the past 18 months as investors have gone in search of yield. They are currently trading on very high earnings multiples with, what seems to be little growth prospects in the short to medium term. However, in my opinion, if I were forced to choose I believe ANZ boasts the best long term strategy – although it's too expensive at current prices to justify an investment.
Therefore unless new investors are buying bank stocks for the long term, I would look to find other alternative stock ideas.
