S&P/ASX 200 Index (ASX: XJO) bank shares are in focus amid an outlook of increased inflation and rising interest rates.
Higher rates can negatively impact the ASX 200 banks' lucrative mortgage lending, as home buyers may shy away from the higher finance costs.
But most analysts forecast that impact will be more than offset by the broader loan margins they can garner in a higher rate environment.
It's not rocket science, really.
To exaggerate the point, if interest rates were at – gasp – 10%, you can see how the banks can take a larger slice of the loan repayments than if rates are at 2% without raising undue objections.
Are ASX 200 bank shares a good opportunity?
According to the head of research Australia at Morgan Stanley, Richard Wiles, higher rates have set ASX 200 banks up for outperformance in 2022.
As The Australian reports, Wiles said despite some company-specific issues, the "good reporting season eased some key concerns".
The "better than feared" results saw the banks' earnings and pre-provision profits exceed "his forecasts by an average of 13 per cent and 8 per cent respectively, reducing concerns about the magnitude of downside risk".
Indeed, Commonwealth Bank of Australia (ASX: CBA), the biggest bank on the ASX 200, with a market cap of $167.4 billion, smashed consensus expectations for 1H FY22 with a statutory net profit after tax (NPAT) leaping 26% to $4.74 billion.
CommBank's fully franked interim dividend also increased by 17% year-on-year. And it announced an on-market share buyback of up to $2 billion.
Wiles labelled the margin pressure faced by the ASX 200 banks during the half-year gone by as "disappointing". But he believes that "the outlook for margins has improved".
According to Wiles (quoted by The Australian), "We believe that recent trends in the mortgage market and the growing prospect of earlier and larger RBA rate rises will see margins trough in 2H22 and then start to recover."
Morgan Stanley notes that business and institutional loan growth has picked up. And the broker forecasts that home loan growth will remain strong.
How have the big banks been performing this year?
All of the ASX 200 bank shares have outperformed the benchmark in 2022, save CBA.
The CBA share price is down 6.7% year-to-date.
Over that same period the Australia and New Zealand Banking Group Ltd (ASX: ANZ) share price has slipped 1.0%; the National Australia Bank Ltd (ASX: NAB) share price is up 2.4%; and Westpac Banking Corp (ASX: WBC) shares have gained 8.2%.
The ASX 200 itself is down 5.9% in 2022 so far.
