Which bank is the best?

by David Taylor

ANZ yesterday was the last of the big four banks to update the market on its financial performance. It delivered a first quarter un-audited statutory net profit of around $1.7 billion - slightly better than both Westpac and the NAB. The CBA delivered a half year profit a short time ago, so a direct comparison can't be made.

I thought I'd speak to some banking analysts to find out, as it stands, which bank is the best for investors and borrowers. As it turns out, one banks leads in both categories... the Commonwealth.

The CBA has invested over a $1 billion upgrading and refreshing its processing systems. It's a huge technology spend but it's clearly paying off. See in this new age of lower revenue (slow credit growth) and higher costs (competition for deposits and an offshore credit squeeze), the bank with the greatest ability to cut costs is going to be the most adaptable and likely the strongest. The CBA's superior technology seems to have given it the 'cost-cutting edge'. It's also interesting that the CBA hasn't had to announce mass redundancies like the other big banks have done in recent weeks.

Analysts also argue the bank will now try to take some business banking market share from the NAB in order to cement its position as the leading bank. On-going growth in its successful managed funds business will also be beneficial for the firm.

If you're looking for value though (good stock at a low price), analysts seem to favour the ANZ and NAB. The experts seem to think it's only a matter of time before they copy the CBA's technology strategy, and both have potential for revenue growth. Both, however, aren't as consolidated as Westpac and the CBA in the domestic market, so will face funding challenges in the medium term.

Analysts also like the bank's hunger for borrowers. We all know the banks can do better than the headline standard variable rate they post on their shop front windows. The Commonwealth Bank it seems is the most aggressive of the big four in keeping customers once they're in the door - offering to beat whatever other home loan deal a customer can find. Of course the quality of a borrower's equity will always play a part in how much discounting the bank can do on an individual loan.

So there you have it, the Commonwealth Bank appears to be out in front. Higher funding costs are likely to remain for some time, and competition for deposits is still healthy, so it seems the race is now on to beat the CBA at its technology game. No doubt the next leader will improve on what the CBA already has in its arsenal, and find yet another entirely unique strategy to give it the competitive edge.

David Taylor

NB: This is general information only and should be taken as financial advice. I have not taken your risk profile or financial situation into account.


The content in my blog is non advisory, please do not interpret this as advice in any way shape or form. These are just my thoughts and nothing I say should be acted upon.

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