ANZ vs. NAB: Which Bank Offers the Best Opportunity in 2025?

13 Mar 2025 | Stock Insight

Australia’s Big Four Banks Under the Microscope

Over the past fortnight, we’ve seen continued market skepticism toward the banking sector. With global recession fears, some dubbing it a potential “Trumpcession”, we’ve witnessed a correction in bank share prices. Westpac is on track to hit Morgan Stanley’s bearish target of $29.20, while CBA has pulled back 5.5% in just one week. However, rather than focusing on short-term market moves, savvy investors should be looking at the long-term prospects of Australia’s major banks.

Now, with CBA and Westpac covered, let’s turn our attention to Australia and New Zealand Banking Group (ASX: ANZ) and National Australia Bank (ASX: NAB).

ANZ: Diversified Strength, but Margin Pressures Ahead

ANZ’s biggest strength has always been its diversified operations, with a strong presence outside of traditional retail banking. The latest results reaffirmed this positioning:

Institutional banking saw impressive 13% loan growth, with corporate finance rising 6% in just the last quarter
Customer deposits increased 2% overall, with Suncorp’s newly acquired banking business growing at 5%.
The weaker Australian dollar provided a foreign exchange tailwind for the business.

However, ANZ’s growing pains have also surfaced:

Credit quality is worsening, with gross impaired assets rising to $1.90 billion, the highest level since 2021.
New Zealand operations saw home loan arrears spike by 75 basis points, in contrast to a slight improvement in Australia.
Net Interest Margins (NIMs) are under pressure, currently at 1.5% with expectations of further downside.

The bank’s CET1 capital ratio (a measure of financial strength) came in at 11.5%, slightly below market expectations. However, given the Suncorp acquisition and ongoing share buybacks, this was anticipated.

Final Verdict on ANZ

Strengths: Diversified operations, strong institutional banking, stable deposit growth.
Weaknesses: NIM pressure, deteriorating loan quality in New Zealand.

NAB: A Turnaround Story Facing Headwinds

When we last covered NAB, it was positioned as a turnaround story, a bank attempting to navigate cost pressures and a high SME (small business) exposure. That story remains largely the same, but with additional hurdles.

For Q1, NAB reported:

Cash earnings of $1.74 billion, missing consensus estimates.
Net profit of $1.7 billion, down 2% from the previous quarter despite a 3% revenue increase.
Credit impairments rose to 1.43%, the highest level in two years, primarily from business lending stress.

While NAB’s SME focus has traditionally been an advantage, it’s now proving to be a double-edged sword. The bank is more vulnerable to:

Heightened deposit competition, leading to funding cost increases.
Higher impairments, as small businesses struggle with rising interest costs.

On the cost side, NAB is trying to rein in expenses:

The bank is targeting $400 million in productivity savings for FY25.
NAB expects operating expense growth to slow as efficiency measures kick in.

However, the market remains unconvinced. Shares fell 7% on results day, reflecting concerns about the balance sheet and the lack of a clear turnaround catalyst.

Final Verdict on NAB

Strengths: Strong SME lending margins, ongoing cost-cutting.
Weaknesses: Rising impairments, deposit cost pressure, sluggish profitability.

The TAMIM Takeaway

With all four major banks now reporting, here’s what we know:

CBA remains the most profitable and well-run, but trades at a steep premium. Investors should consider valuation risks before buying.
Westpac has struggled, but the market reaction may be overly harsh. A higher-risk proposition with potential long-term upside if execution improves.
ANZ offers a more balanced approach, benefiting from institutional strength and Suncorp’s integration. However, margin pressure is a risk.
NAB continues to face structural challenges, with higher impairments and funding costs weighing on sentiment.

Ultimately, CBA remains the best-managed bank but is priced accordingly. ANZ presents a reasonable alternative, while Westpac and NAB have more execution risks.

At TAMIM, we focus on businesses that are not only well-managed but also trading at attractive valuations. With interest rates shifting and macro uncertainties ahead, investors should remain selective when considering Australian bank stocks in 2025.

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Disclaimer: Commonwealth Bank (ASX: CBA), NAB (ASX: NAB) and ANZ Bank (ASX: ANZ) are held in TAMIM individually managed accounts as at date of article publication. Holdings can change substantially at any given time.