Is it time to cash in some profit on ASX 200 bank shares?

The S&P/ASX 200 Banks Index surged almost 30% compared to a 7.5% lift for the broader ASX 200 last year.

A man in a business suit whose face isn't shown hands over two australian hundred dollar notes from a pile of notes in his other hand to an outstretched hand of another person.

Image source: Getty Images

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

ASX 200 bank shares had a phenomenal run in 2024, with the S&P/ASX 200 Banks Index (ASX: XBK) soaring 29.75% compared to a 7.49% lift for the benchmark S&P/ASX 200 Index (ASX: XJO).

The following chart shows what happened with the major ASX 200 bank shares last year.

Created with Highcharts 11.4.3Commonwealth Bank Of Australia + Anz Group + Westpac Banking Corporation + National Australia Bank + Bendigo And Adelaide Bank + Bank ofQueensland + Judo Capital PriceZoom1M3M6MYTD1Y5Y10YALL1 Jan 202431 Dec 2024Zoom ▾Jan '24Mar '24May '24Jul '24Sep '24Nov '240www.fool.com.au

With share prices elevated, would it be prudent to reduce your holdings or cash out altogether?

Should you consider taking profits on ASX 200 bank shares?

Let's canvas some expert views to help you decide whether to take profits on ASX 200 bank shares.

According to The Australian, top broker Morgan Stanley thinks ASX bank share prices have overshot.

Based on consensus estimates, the Big Four banks have a 12-month forward price-to-earnings (P/E) ratio of 18.3. This is well above the decade average of 13.7 and the post-pandemic average of 14.4.

They have a 12-month forward dividend yield of 4.7%.

Morgan Stanley analyst Richard Wiles said:

We believe current share prices are not justified based on the banks' growth and return profile.

Wiles said today's high P/Es reflected the banks' strong balance sheets, low earnings risk, and safe haven appeal.

JPMorgan strategist Kerry Craig said the issue with last year's big winners, such as ASX 200 bank shares and tech stocks, was valuations.

In the Australian Financial Review, Craig said these companies' share prices could fall if they didn't grow their earnings enough to justify their re-rated valuations.

Casey McLean from Fidelity International said bank shares were "at risk given the low growth outlook and high valuation".

Matthew Haupt from Wilson Asset Management also has concerns about the valuations of bank shares.

Haupt puts it this way:

Commonwealth Bank of Australia (ASX: CBA) is now trading at 3.5x price-to-book (P/B) ratio value, while writing loans at cost of capital, worth 1x book value.

CBA's dividend yield of 3% now pales in comparison to the 4.5% return you could earn in a CommBank term deposit.

While they are great businesses, this does not represent value to us.

Haupt said his team preferred undervalued companies with strong assets, such as Spark New Zealand Ltd (ASX: SPK), Telstra Group Ltd (ASX: TLS), Dexus (ASX: DXS), and Challenger Ltd (ASX: CGF).

Mathan Somasundaram, CEO of Deep Data Analytics, said they would sell bank shares because "they are trading at unsustainable levels due to global funds".

Somasundaram advocates reducing exposure to shares and bulking up on cash and bonds for now.

What about dividends?

Hamish Tadgell from SG Hiscock and Co. said some investors were hanging onto their ASX 200 bank shares for the dividends.

However, he said investors "should expect lower future returns, given current valuation and earnings growth expectations".

There's still a chance the banks could stay at their current high share prices if economic conditions remained the same and home loan arrears and other bad debts did not significantly increase, he added.

Wondering where you should invest $1,000 right now?

When investing expert Scott Phillips has a stock tip, it can pay to listen. After all, the flagship Motley Fool Share Advisor newsletter he has run for over ten years has provided thousands of paying members with stock picks that have doubled, tripled or even more.*

Scott just revealed what he believes could be the 'five best ASX stocks' for investors to buy right now. We believe these stocks are trading at attractive prices and Scott thinks they could be great buys right now...

See The 5 Stocks *Returns as of 3 April 2025

JPMorgan Chase is an advertising partner of Motley Fool Money. Motley Fool contributor Bronwyn Allen has positions in Macquarie Group. The Motley Fool Australia's parent company Motley Fool Holdings Inc. has positions in and has recommended JPMorgan Chase and Macquarie Group. The Motley Fool Australia has positions in and has recommended Bendigo And Adelaide Bank, Macquarie Group, and Telstra Group. The Motley Fool Australia has recommended Challenger. 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 small child in a judo outfit with a green belt strikes a martial arts pose with his hand thrust forward.
Bank Shares

3 reasons to buy this quality ASX 200 bank stock today

Up 27% in a year, a leading expert forecasts more upside potential for this ASX 200 bank stock.

Read more »

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

Is this the right time to invest in Westpac shares?

Is this blue-chip bank an appealing option right now?

Read more »

Woman and man calculating a dividend yield.
Bank Shares

2 ASX 200 bank stocks to sell today: Bell Potter

Bell Potter forecasts more headwinds in 2025 for these two ASX 200 banks.

Read more »

Two boys lie in the grass arm wrestling.
Share Market News

Regional bank battle:Bendigo Bank or Bank of Queensland shares?

Looking outside the big four? These two regional banks might be worth considering

Read more »

A man watches the share price movement closely.
Bank Shares

I want to buy CBA shares. What price should I pay?

What would be a good valuation to buy CBA at?

Read more »

Buy, hold, and sell ratings written on signs on a wooden pole.
Bank Shares

ANZ shares: Buy, sell, hold?

With the ANZ share price in retreat, the bank stock’s dividend yield is now at 6.2%.

Read more »

View of a business man's hand passing a $100 note to another with a bank in the background.
Bank Shares

Is the CBA share price a buy amid the global tariff sell-off?

Are CBA shares now a bargain after some volatility?

Read more »

Happy young couple saving money in piggy bank.
Bank Shares

$10,000 invested in ANZ shares 5 years ago is now worth…

Was it a smart move? Let's run the numbers.

Read more »