Is it time to get back into the Big Four banks?

Now that last month's final report from the Royal Commission into misconduct in the financial services industry is well and truly behind us, is it time to re-examine the 'Big Four' banks?

| More on:
a woman

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

The more things change, the more they stay the same… Now that last month's final report from the Royal Commission into misconduct in the financial services industry is well and truly behind us, is it time to re-examine the 'Big Four' banks?

The market seems to think so.

In just over a month, the Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd. (ASX: NAB) and Australia and New Zealand Banking Group (ASX: ANZ) share prices have all risen on average over 5.5% since the final report was handed down. Although the share market seems to be in a 'forgive-and-forget' kind of mood, can the banks be trusted to deliver for shareholders without forsaking customers going forward?

Of course, many investors love the 'Big Four' for their dividends. The banks are all paying a dividend between 5 and 8 percent (before franking). It is reasonable to expect that these yields are relatively sustainable, due to the banks' grip on the Australian banking industry, their dominant pricing power and their brands (although this one has taken an obvious hit).

I believe the biggest threat to the banks' future cash flow is the risk of Australia's housing market undergoing a significant correction in the next year or two. The housing boom of the last decade has fuelled the profitability of the 'Big Four'. Sharply rising house prices saw a rush of mortgage applications from FOMO-crazed property investors, particularly between 2012 and 2016. This sentiment has dried up over the past two years, but any further corrections in property prices would have a significant impact on the banks' balance sheets if investors decide to cut their losses.

Furthermore, the proposed curtailing of tax concessions such as limiting negative gearing and cutting the capital gains tax discount, if implemented, would also add pressure on lending demand. Mortgage lending is a highly-profitable revenue stream for all of the banks, and as such, any significant changes in this environment would significantly impact free cash flow.

Foolish Takeaway

For these reasons, I would consider NAB and ANZ as a safer bet, as they have a larger exposure to business lending and less to residential property loans than the Commonwealth Bank and Westpac. NAB alone receives around 45% of its revenue from commercial lending operations. This represents a more diversified business model and means that NAB and ANZ are better positioned to weather adversity in the property market going forward.

Should you invest $1,000 in Collins Foods Limited right now?

Before you buy Collins Foods Limited shares, consider this:

Motley Fool investing expert Scott Phillips just revealed what he believes are the 5 best stocks for investors to buy right now... and Collins Foods Limited wasn't one of them.

The online investing service he’s run for over a decade, Motley Fool Share Advisor, has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

And right now, Scott thinks there are 5 stocks that may be better buys...

See The 5 Stocks *Returns as of 30 April 2025

Motley Fool contributor Sebastian Bowen owns shares of National Australia Bank Limited. The Motley Fool Australia owns shares of National Australia Bank Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

More on Bank Shares

A woman sits at her computer with her hand to her mouth and a contemplative smile on her face as she reads about the performance of Allkem shares on her computer
Bank Shares

How did ASX bank shares react to the RBA decision?

The Reserve Bank of Australia just reduced interest rates by 0.25% in the second cut for 2025.

Read more »

A young woman sits at her desk in deep contemplation with her hand to her chin while seriously considering information she is reading on her laptop.
Dividend Investing

Dividends from ASX 200 bank shares 'looking very stretched': expert

The banks have always been a favourite choice among ASX dividend investors. But the outlook ain't great.

Read more »

A pink piggybank sits in a pile of autumn leaves.
Bank Shares

How much higher can the CBA share price rise?

One fund manager has given their view on the biggest bank.

Read more »

A young man goes over his finances and investment portfolio at home.
Bank Shares

Why is the Macquarie share price sinking today?

Let's see what is causing its shares to start the week in the red.

Read more »

Woman with spyglass looking toward ocean at sunset.
Bank Shares

Here's the earnings forecast out to 2029 for NAB shares

Let’s look at what experts are predicting for the bank.

Read more »

A man in a suit looks serious while discussing business dealings with a couple as they sit around a computer at a desk in a bank home lending scenario.
Bank Shares

Here's what Westpac says the RBA will do with interest rates next week

The RBA is meeting on Tuesday. Will it cut rates? Let's find out.

Read more »

A woman wearing yellow smiles and drinks coffee while on laptop.
Bank Shares

CBA shares top $170. Where to now?

Another day, another record high for CBA shares.

Read more »

a young boy dressed in a business suit and wearing thick black glasses peers straight ahead while sitting at a heavy wooden desk with an old-fashioned calculator and adding machine while holding a pen over a large ledger book.
Bank Shares

Which big 4 ASX bank shares does Macquarie expect to cut their dividends?

Not every bank is likely to continue paying the same dividend.

Read more »