With interest rates on the slide, Aussie banks could gain a boost from increasing demand for new loans. Certainly, the RBA may have kept rates on hold this week and there may be concerns surrounding a housing bubble, but the weakness in commodity prices is causing uncertainty and, over a period of time, this can eat away at business confidence. As such, the RBA appears to have its hands tied if it wants to reinvigorate the economy over the medium term.
Growth Potential
Of course, another consequence of lower interest rates is that it becomes easier to make interest payments on outstanding debt. As such, the proportion of bad loans at Aussie banks may fall and, alongside the aforementioned rising demand for new loans, could lead to improved guidance for the sector.
Even so, banks such as Commonwealth Bank of Australia (ASX: CBA) and Australia and New Zealand Banking Group (ASX: ANZ) are already expected to increase their bottom lines at reasonable rates over the next two years. For example, CBA is forecast to post annualised growth in its earnings of 4.9% during the period, while for ANZ the figure is slightly lower at 3.3%. On this front, then, there is a clear winner of the three stocks being considered, with National Australia Bank Ltd. (ASX: NAB) due to see its net profit soar by 14.5% per annum over the next two years.
Valuation
Despite this rate of growth being well in excess of that of the ASX, NAB trades at a significant discount to the wider market. While the ASX has a price to earnings (P/E) ratio of 16.9, NAB's P/E ratio is just 13.3. This is lower than that of CBA, which has a rating of 14.9, but is higher than ANZ's P/E ratio of 12.2. However, with NAB forecast to increase its bottom line at a rate that is over four times as much as that of ANZ, it appears to be worth the premium.
Income Prospects
Furthermore, NAB also has the highest yield of the three at the present time at 5.9%. While CBA and ANZ also yield more than the ASX's 4.3%, with them having yields of 5% and 5.6% respectively, they lag behind NAB's yield. They all have payout ratios of between 70% and 75%, which limits their scope for increasing dividends at a faster rate than profit growth.
Looking Ahead
With the highest forecast growth rate, best yield and relatively appealing valuation, NAB appears to be the pick of the three banks. Certainly, CBA and ANZ also appeal and have great income prospects and enticing valuations relative to the ASX, but NAB's growth rate in particular helps it to stand out when compared against them.
Certainly, NAB's future may not be all that straightforward, with the divestment of its UK operations likely to act as a brake on investor sentiment. Furthermore, the market's view of the bank has been somewhat uncertain in recent months – as evidenced by its flat share price performance over the last year. However, with a potent mix of growth, income and value potential, it could be a strong performer that is aided by the RBA's ever looser monetary policy.
