According to wealth management firm Shaw and Partners, now might be a good time for investors to buy the banks. A report in the Australian Financial Review today reveals that its research found the Australian banks to be amongst the most efficient in the world.
Although their collective net interest margins are lower than their British and American counterparts, they produce much stronger returns on equity.
The average return on equity for the eight largest Australian banks is 13.8%, compared to 7.8% in the UK and 8.7% in the United States.
This is the result of the local banks possessing much better cost controls. According to the research Australian banks have an average cost-to-income ratio of 44%, compared to between 62% and 63% in the UK and United States.
As far as Shaw and Partners are concerned this supports the view that an investment in either Australia and New Zealand Banking Group (ASX: ANZ), Commonwealth Bank of Australia (ASX: CBA), National Australia Bank Ltd. (ASX: NAB), and Westpac Banking Corp (ASX: WBC) would be a good move now.
I agree with Shaw and Partners on the banks. I think the banks are a great addition to a balanced portfolio due to their generous dividend payouts. Whilst all four banks are investable in my opinion, the pick of the bunch for me would have to be ANZ.
ANZ looks particularly appealing with its shares trading on a price to book ratio of 1.4 and providing a trailing fully franked 5.8% dividend.
Although it cut its dividend this year, I feel it is a much stronger bank because of it. As well as this the bank is reinventing itself and shedding non-core assets. It may still be early days in ANZ's transformation, but I believe the simplification of its business will deliver results moving forward.
The banks may not be loved by investors, but in the current low interest environment they represent a great source of income in my eyes.
