It’s not just the Big 4 – here’s why the ASX banking sector isn’t as boring as you think
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The list of ASX bank stocks is greater than just the Big 4 – over a dozen ASX stocks offer various banking services from retail banking to mortgages.
The latter of these stocks was formerly known as Goldfields Money but changed its name in 2019 in an attempt to gain more brand recognition.
One of the more peculiar stocks is Kina Securities (ASX:KSL) which services PNG – a market which even the Big 4 have struggled in and have consequently exited.
Mortgage Choice recently received a takeover bid from REA Group (ASX:REA) – a deal that appears all but certain to proceed with the board endorsing the offer and recommending shareholders do likewise.
The Big 4 have made gains in the last 12 months – albeit from COVID-19 lows.
Westpac (ASX:WBC) is up 55 per cent while NAB (ASX:NAB) is up 66 per cent.
While the banks are reliable dividend payers and account for a large portion of the market, it has been argued they still aren’t as big as they could be.
Management consultancy The Ruthven Institute says despite the Big 4 appearing to dominate they have been held back from their full profitability potential by Four Pillars policy – among other factors.
Ruthven argued this in the context of a recent report showing only one in 10 ASX stocks achieved the World’s Best Practice level of profitability compared to 1 in four US listed companies.
It argues that to achieve this requires reaching economies of scale and collecting at least a 25 per cent market share or otherwise reach a smaller market share and specialise in a niche products such as BNPL players.
The Institute’s boss Phil Ruthven says the Big 4 banks are neither, trying to be the jack of all trades but are ultimately the master of none.
“The Four Pillar policy made it impossible virtually for anybody to get over 25 per cent and to this day there are none of the banks in a major position of economies of scale,” the Institute’s boss Phil Ruthven told Stockhead.
“The only one that’s close is CBA and they’re up around 23 per cent and also happen to be the most profitable at the moment. All the other banks are stuck between a 5 per cent share and 25 per cent share and we call that a very unsafe area to be in.”
Ruthven also names two other problems the Big 4 banks have faced that shows they really aren’t that big.
“The second problem that banks have faced in Australia is that they have started to diversify too much by expanding into things like stockbroking, fund management and financial advisory areas.
“They became what you might call the jack of all trades and master of none.
“The third problem was more serious in that the banks tried to go overseas but the trouble is they didn’t really take anything special about themselves – when they got to the bigger countries they were a small fish and a big pond.
“And most have written off billions of dollars in shareholders funds and have gone back without gaining anything. “