Beloved bank shares are no bargain

Bank price-earnings ratios are looking stretched as investors pay a hefty premium despite a muted outlook, lured by an attractive dividend yield.

On a valuation basis, the Big Four banks are looking expensive compared with historical averages as growth potential remains muted in the absence of booming credit growth. A Deutsche Bank report estimates the forward price-earnings ratio to be 14.1 against a 25 year average of 10.8. That's a 30 per cent premium. 

Reporting season saw balance sheets of the Big Four bolstered to be one of the more noteworthy positive outcomes. But core earnings were relatively flat once bad and doubtful debt (BDD) and tax rates were accounted for.

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