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Summary
- Some of the Banking stocks have delivered triple-digit returns in the last three-month period
- They occupy a significant weightage in world indices and mature investors always keep a significant amount of portfolio allocation in banking stocks
The economy is made up of transactions, which often emerge or pass through a financial intermediary such as banks. A bank in many ways is a more complex business than it seems. This business has been in existence since ages and has seen a lot of recessionary cycles in recent times. Banks, most of the time, remain functional, as they control the flow of credit in an economy. This is precisely why most of the world indices have banking stocks as their major constituent. Likewise, mature investors always keep a significant amount of portfolio allocation in banking stocks.
The banking industry in the UK had been operating in a very challenging environment. From Brexit uncertainties, near-zero interest rates to rising debt pile, banks have remained afloat so far. In addition, the banking system has been facing stiff competition from the emergence of fintech firms and peer to peer lending platforms. Here we are going to talk about five banking stocks, which can be kept an eye on for the next year, 2021.
- Barclays Plc (LON: BARC)
The price to book 5 year average for the FTSE 100 listed bank stood at 0.45, which was lesser in contrast to the industry median. This implies that the current price is lesser than the intrinsic value of the stock. Barclays shares were trading at GBX 154.60 on 24 December 2020. The bank’s Return on Equity 5 Year average was reported to be 8.28 per cent.
The bank’s impairment charges in the second half of 2020 are expected to be lesser than the first half of 2020. Barclays shares have delivered a price return of nearly 69 per cent in the last three-month period.
- Lloyds Banking Group Plc (LON: LLOY)
Lloyds Bank’s Return on Equity 5 Year average was reported to be 8.08 per cent. Over the past three years (H1 FY17-20), Lloyds revenue and gross profit have surged at a CAGR of 90.42 per cent, and 61.46 per cent, respectively.
As of 30 September 2020, total assets at £606,888 million, reflected a 4 per cent increase from £581,368 million on 31 December 2019. Even the cash balance rose by £13,514 million during the nine-month period. In addition, the increase in assets, shareholder’s equity, and Tier 1 capital ratio underpin strong fundamentals. Lloyds shares have delivered a price return of nearly 56 per cent in the last three-month period.
- HSBC Holdings Plc (LON: HSBA)
FTSE 100-listed HSBC Holdings Plc intends to increase the rate of investment, particularly in wealth management, trade finance and sustainable finance in the Greater Bay Area, South Asian region.
Price/Book Value multiple of the HSBA is currently lower than the Banking Services industry, which implies that the current price is lesser than the intrinsic value of the stock. Common equity tier 1 capital (CET1) ratio increased by 0.6% to 15.6% against the previous quarter (Q2 FY20: 15.0%), reflecting a decrease in RWAs (risk-weighted assets) on a constant currency basis.
In the last three-month period, the Company has delivered a decent return of 29.44 per cent, which is higher as compared to the FTSE 100 Index return.
Also read: Fintech Drives The Banking Sector: Barclays Employs Third Tech Tool
- NatWest Group Plc (LON: NWG)
Customer deposits of the Company increased by £10.1 billion to £418.4 billion during the third quarter of 2020. With regards to its financial position, the Company is having strong liquidity coverage ratio (LCR) of 157 per cent as of 30 September 2020.
The Company has reduced its RWA (Risk-weighted assets) by £7.6 billion, bringing CET1 ratio to 18.2 per cent during the third quarter of 2020, which is 100 basis points higher than the levels of Q2 FY20. The FTSE 100 listed bank has recently acquired a mortgage portfolio from Metro bank to supplement long term organic growth. NatWest Group shares have delivered a price return of nearly 69.59 per cent in the last three-month period.
- Metro Bank Plc (LON: MTRO)
The peer-to-peer banking still is in a very nascent stage, and Metro Bank aims to make the most of the ground by acquiring P2P lender, RateSetter. During the third quarter of 2020, the bank’s assets were up by 5 per cent year on year basis to £22,140. Similarly, the deposit accounts grew by 10 per cent year on year to £15,622 during the third quarter of 2020. The bank has extended more than £1.3 billion in government-backed business loans to more than 30 thousand customers, and it remains committed to SMEs during these unprecedented times. Metro Bank shares have delivered a price return of nearly 109.51 per cent in the last three-month period.
