The broker Macquarie has picked out which big four ASX bank share it likes the most at the current valuations. Those large banks to choose from are Commonwealth Bank of Australia (ASX: CBA), Westpac Banking Corp (ASX: WBC), National Australia Bank Ltd (ASX: NAB), and ANZ Group Holdings Ltd (ASX: ANZ).

Despite the volatility created by US tariffs, bank share prices have "held up well" in the last few months, according to a broker note put out by Macquarie ahead of the banking results for the first half of FY25 (aside from CBA, which reported in February).

The broker suggested that share prices have been resilient because banks are perceived as a relative safe haven during global stock market instability.

However, while Macquarie sees limited risk in the upcoming reporting season, the broker believes there are medium-term risks that earnings could be impacted by intensifying lending competition and the likely decline of interest rates.

Due to that, Macquarie believes there are risks to bank share prices if market expectations (of multiple rate cuts) are correct. The broker is currently forecasting 100 basis points (1.00%) of rate cuts. The experts warned there's a risk to earnings in FY26 and FY27 of between 5% and 10% if rate cut predictions are correct.

Macquarie's big four ASX bank share choice

Let's first look at why Macquarie didn't choose the other three major banks as its preferred pick.

The broker described CBA shares as having an "extreme valuation", though it sees limited earnings risk in the near term. However, as the RBA reduces rates, Macquarie thinks profit margin pressures will emerge for CBA.

For ANZ, a key focus for Macquarie on ANZ's upcoming result will be an update about the integration costs and progress of the Suncorp Bank acquisition, as well as synergies and further guidance on ANZ Plus (digital banking).

Macquarie is concerned for Westpac's earnings in FY26 and FY27, as with CBA, with how lower rates could impact profit margins. The broker believes Westpac is "most exposed" to RBA rate cuts.

NAB is Macquarie's pick of the big four ASX bank shares. Macquarie thinks there is scope for management to "alleviate emerging concerns" related to weaker credit quality trends, with those market worries reflected in the NAB share price. Successfully addressing those concerns could be a positive catalyst for NAB shares, according to the broker. Macquarie is also expecting rate cuts to have a smaller impact on NAB's margins.

However, NAB is not risk-free. Macquarie noted both the potential positives and negatives:

The key upside risks to our recommendation include stronger-than-expected business credit growth and NAB's ability to turn around the performance of its proprietary retail banking channel, leading to improved profitability and market share gains in cheaper transactional deposits. Key downside risks include an economic downturn impacting business credit quality and an unexpected ramp-up in investment spend.

Macquarie has a neutral rating on NAB shares, with a price target of $35. While that implies a decline in the next year, the broker is more pessimistic on CBA shares and Westpac shares, with price targets of $105 and $28, respectively.