Why are the CBA and NAB share prices climbing?

Posted: 29 December 2021 12:48 pm
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Shares in the Big Four banks have risen 1-7% in the past month.

The banking sector has not had a good run in the second half of the year but the stocks seem to be regaining some ground as the year draws to a close. The Big Four banks have clawed back between 1% and 7% in the last month alone and Commonwealth Bank (ASX: CBA), Westpac (ASX: WBC), National Australia Bank (ASX: NAB) and ANZ (ASX: ANZ) were again trading 1-1.7% higher on Wednesday.

What is lifting up the bank stock prices?

The recent lift is largely due to expectations that the Australian economy is rebounding strongly following the lockdown-induced contraction in the September quarter.

The Reserve Bank has repeatedly said in the past few weeks that despite the Omicron outbreak it remains confident of a strong 2022 for the economy based on the likelihood of a surge in consumer spending and lower unemployment.

Earlier this month, RBA governor Philip Lowe said the recovery would be underpinned by the reopening of the economy, the high rates of vaccination, significant fiscal and monetary support, and the strengthening of household and business balance sheets over the past year.

That would be directly beneficial for the banking sector. Each of the Big Four banks reported subdued results in recent months due to concerns about lockdowns affecting household spending and ability to service loans, amid narrowing margins due to record low rates.

Outlook improving

But some economists and analysts are already betting that Australia will see a lift in interest rates sometime next year, which should provide more room to improve margins for the major banks.

Their main cash cow business, home loans, has also been going strong thanks to a red hot property market that has prompted each of the major banks to lift fixed-rate home loans above 2%. And the likes of Westpac and NAB have also beefed up staff levels in the second half of 2021 to take on the rising volumes.

The sentiment is being reflected in analyst outlook on the individual bank stocks. In recent weeks, Bell Potter has lifted its price target on NAB’s shares to $32 retaining a "Buy" rating, indicating a more than 10% upside from current levels. Bell Potter also has a "Buy" rating and $111 price target on CBA shares.

Similarly, analysts at Morgans have retained their "Add" rating on ANZ shares with a $31 price target, implying a 12% upside from current levels. Goldman Sachs rates Westpac shares "Neutral" with a 12-month share price target of $25.60.

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