Mixed Scorecard on Capital Allocation, but Australian Major Banks Seemingly on the Right Path

Given strict regulatory requirements, banks usually have sound balance sheets, making decisions around investment strategy (including loan growth and quality) and distributions more important in determining shareholder returns. On balance sheet strength and distribution strategies it’s a level playing field across the major banks in our opinion, but we think Commonwealth Bank has edged its peers on strategy and execution. We assign a Standard capital allocation rating across the banks, but we think the pendulum is swinging close to an exemplary rating for Commonwealth Bank, while Westpac and National Australia Bank are closer to Poor. We make no other changes to our earnings forecasts or fair value estimates.