Bank shares may have fallen but they remain a strong medium and long-term prospect, advisers say. Source: Supplied

A flurry of external factors conspired to push shares in the four major banks 14-20 per cent lower between March and May, but investment experts say now is not the time to panic and sell.

Westpac, NAB, ANZ and the Commonwealth Bank may even be a good buying opportunity for those with a long-term view and a desire for dividend income that is more than twice as high as savings account interest.

The weakness has been blamed on over-exuberant buyers earlier this year pushing prices too high, concerns about tighter regulations, worries about a housing boom ending in disaster, and a weak economy.

Plenty of bounce

“We think they can bounce back,” said Baker Young Stockbrokers managed portfolio analyst Toby Grimm. That rebound may already be under way, with all four big banks’ shares prices rising more than 1.5 per cent yesterday.

“Westpac fell 20 per cent from peak to trough. That’s a pretty significant decline and we don’t think their earnings outlook is clouded too greatly,” Mr Grimm said.

“In the medium and long term we think they are very good businesses and will continue to provide very attractive dividend yields that should support their share prices.”

Their dividend yields now sit between 5 and 5.8 per cent, before you add the tax benefits of franking credits. “It’s nearly 8 per cent when you take the franking into consideration,” Mr Grimm said.

Slow but steady

Macquarie Private Wealth division director Paul Kirchner said bank shares had “run too hard ahead of themselves” earlier this year, and their profits and dividends were likely to climb slowly over time.

“We’re not expecting a fall but we’re not expecting big rises,” he said.

“My opinion is that the market’s probably overreacted to the external factors.

“I’m not expecting them to go to the moon, but I’m happy to sit on that yield and wait for a recovery. The economy is flat, and when the economy picks up the banks will pick up.”

Peak performance

CMC Markets chief market analyst Ric Spooner said his view was that the banks now offered “reasonable value, but not as good as they did a week ago”.

He said there were challenges ahead on the economic and regulatory front, but believed the banks would be helped by low interest rates.

“If the Australian dollar keeps falling it will look like value for offshore investors, which will support them,” he said.

Despite recent falls, banks had been one of the best sectors on the sharemarket for the past decade, Mr Grimm said. “The market still remains well below the peaks we had before the GFC but three of the big four banks are trading above those peaks.”