Whether you love them or hate them, there's no denying that our big banks are terrific businesses.
For starters, given their importance to the economy, the government would never let one of them go under. Not that a government bailout is even a remote possibility. Our banks are very profitable, well managed and well regulated. The big four have credit ratings that put them among the highest-rated banks in the world.
And they have pricing power. While that may not be so good for customers, it's great for shareholders.
The share prices of the big four banks have risen by between 15 per cent and 25 per cent since early June, after taking a dive in May. Much of the price rises have been driven by investors chasing yield as interest rates on term deposits come down.
With more rate cuts likely, the appeal of the big banks and their cash dividend yields of almost 6 per cent probably means the rise in bank share prices is not yet over, even though the outlook for their profit growth is anaemic. The outlook on profit growth is weak because consumers have become a lot more cautious about taking on debt since the global financial crisis.
But income investors won't mind the slower rate of profit growth, especially as the dividends come with franking credits that give shareholders an effective dividend yield of more than 8 per cent. That's not bad when compared with one-year term deposits paying 4.5 per cent, on which income tax must be paid on the interest.
Analysts say all four big banks are very good businesses. Choosing one or two over another will depend on whether the investor is prepared to take on a little more risk in exchange for the prospect of a higher share price down the track.
Analysts view the Melbourne-based ANZ and NAB as slightly riskier because of their overseas businesses: ANZ has its Asian growth strategy and NAB has its underperforming British banking business.
The Commonwealth Bank and Westpac are more focused on retail banking and have larger mortgage books than the other two, which are bigger players in business banking. But with consumers wary of further borrowing, business banking may be more profitable, and Westpac is still digesting its St George takeover.
The Commonwealth Bank, our biggest bank, probably has the fewest risks, but its share price has run hard since June and is trading at about, or slightly above, the fair value analysts give the bank's shares.
David Ellis, the head of banking research at Morningstar, says NAB is the cheapest of the big four and has the highest forecast cash dividend yield for the year to June 30, 2013 - 7 per cent, before franking credits.