Chart of the Week: The CBA chart you can’t ignore
Where value remains in Australian banks.
Mentioned: Commonwealth Bank of Australia (CBA), ANZ Group Holdings Ltd (ANZ), Judo Capital Holdings Ltd (JDO)
This week’s insights come directly from our equity analyst Nathan Zaia in the latest Australian Banks Q2 Industry Pulse.
Aussie major banks have further to fall to match earnings and risks
The major banks’ weighted-average price/fair value estimate fell to 1.33 from 1.41 in the previous quarter. Nonmajors ended the quarter at 0.88, steady with the previous quarter, with the higher interest rate environment hurting their competitive position. While no longer cheap, ANZ Group (ASX.ANZ) offers the most relative value among major bank peers, with improving operating efficiency. If ANZ Bank can deliver similar earnings growth at a cheaper P/E, we expect its discount to peers to shrink.
Commonwealth Bank (ASX.CBA) is most expensive on a forward P/E of 25 times and a fully franked dividend yield of around 3%. The valuation divergence between Commonwealth Bank and its peers is unjustifiably wide. Despite trailing peers over the past 12 months, Commonwealth Bank has outperformed so far this year. As the largest and most profitable bank, it is likely viewed as the safest option as uncertainty around loan losses rises.
ANZ best relative value among expensive majors
ANZ Group is the smallest of the wide-moat major banks in Australia and benefits from cost advantages that support our expectation of above cost-of-equity returns over the long term. ANZ resorted to discounting and cashbacks to arrest lost home loan market share, but we expect investments in process and digital offerings to make the wide-moat bank more competitive.
Management is reviewing strategic priorities to cut costs and lower non-financial risks, which should help drive earnings growth and returns on equity. We expect the Suncorp Bank acquisition to modestly improve bank efficiency, increasing its funding from low-cost transaction accounts and leveraging technology investment.
Aussie non-major bank priced for elevated loan losses
Judo (ASX.JDO) is a no-moat, specialist business bank carving out share in Australia’s SMB lending market through a relationship-led, dedicated-banker model — high-cost, but genuinely differentiated. Judo lends where the majors won’t, charging above-market rates for the risk. Shares crashed after a trading update in which higher credit stress drove a 10% downgrade to fiscal 2026 pretax profit guidance.
We see this as idiosyncratic, not systemic — a handful of one-off exposures, not broader loan book deterioration — and don’t expect elevated losses to persist long-term. On a single-digit forward P/E, the market has pushed risk/reward too far to the downside.
The full report is available to Morningstar Investor subscribers and trialists.
