Backed by worldwide regulatory reform, the global banking industry
is currently going through a transformation phase. Though the
growth potential of some non-U.S. banks could be subdued due to
higher reserve requirements, increased property taxes and strict
lending limits as part of the regulatory overhaul, greater
transparency in regulation could strengthen the fundamentals of
many banks. Moreover, it is expected to create a less risky lane
for the overall industry.
Since 2010, the banking sector has been recovering at a moderate
pace from the latest financial crisis that started as a credit
issue in the subprime enclave of the U.S. mortgage market in
mid-2007 and spilled all over the globe.
Though the malice spread by the financial crisis is behind us,
banks are now dealing with regulatory pressure as they had to take
resort to taxpayers' money and government intervention to remain
afloat. Moreover, government efforts to alleviate industry concerns
have significantly raised political hurdles in the sector over
time.
Politics will continue to influence lending decisions of banks
until they repay the government money in full. According to banking
regulators, if governments withdraw their support from banks before
giving them sufficient time to restore their financial strength,
the sector could collapse again.
The industry has been adopting tougher regulatory measures to
prevent the recurrence of a global financial crisis and restore
public confidence. In June, the oversight body of the Basel
Committee on Banking Supervision proposed new rules that would
force the world's biggest banks to hold extra capital on their
balance sheets as protection and prevention against any financial
catastrophe. The targeted banks are those that could threaten
global economy if they collapse.
This extra capital requirement is an addition to the set of minimum
capital standards, known as Basel III, proposed by regulatory
officials of more than two dozen countries in 2010.
Under the proposed rule, mega banks worldwide would have to
maintain an extra 1% to 2.5% of capital on their balance sheets in
addition to the Basel III mandate of 7%. The percentage will vary,
depending on the size of their balance sheets. The Basel Committee
will allow the target banks three years –– 2016 to 2018 –– to meet
the new capital requirements.
The Swiss government was an early bird, proposing to increase the
minimum common equity requirement to 10% for
UBS
AG (UBS) and
Credit Suisse Group
(CS).
With these regulatory measures, the individual capital structures
of banks will remain under constant pressure. The resulting
slowdown at some big banks could be seen as a blessing in disguise
as it would eventually make their balance sheets more
recession-proof.
Balance sheet repair and credit environment recovery will make the
valuations of some non-U.S. banks attractive. Particularly,
valuations of the mega banks, which could comfortably maintain the
minimum capital norms mandated by the Basel Committee, will
experience the fastest valuation upside. Consequently, we believe
this would be the perfect time for mid- to long-term investors to
consider non-U.S. bank stocks, as their valuations are now
comparatively cheap.
Investors with short-term targets, however, should be very careful
while choosing non-U.S. stocks at this point as near-term
fundamentals remain weak; asset quality lacks potentiality to
rebound anytime soon as default rates for individuals and companies
are not expected to materially subside; and revenue growth might
remain weak with faltering loan growth.
The sector anticipates an upturn in the second half of 2011. But
this will vary from country to country, depending on industry
circumstances. We believe that banks in emerging economies ––
Chile, Brazil or India –– might make more attractive investments,
akin to our expectations from certain regional banks in the
U.S.
The same, however, cannot be said of European institutions. In
early 2010, the debt crisis originating in the Greek economy shook
the stability of the European Union's (EU) monetary policies.
Starting as a solvency crisis in a single country, the turmoil
threatened the entire Euro-zone.
Greece adopted measures to minimize government spending and stress
test results were largely reassuring, but there is no guarantee
that the country is out of the woods as affluent domestic and
foreign investors will not stop withdrawing their money from Greek
banks anytime soon. Also, rising inflation will force regulators to
tighten their policies in the Euro-zone, making banks less
flexible.
In May 2011, related to the refinancing of public debts, the crisis
in Greece re-emerged. Political instability further compounded the
problem. However, the situation is now under control with the
intervention of the Greek government and financial assurance from
European Union leaders.
Overall, the European Union is making progress in restoring faith
and confidence of investors as well as the health of the
continent’s banking system, but the issue is far from fully
addressed.
Coming to banks in emerging economies, they will obviously face
asset quality issues. However, they are not plagued by other
significant problems that many of the larger banks face in
continental Europe and the United Kingdom, such as toxic securities
and dilution from capital raising. Moreover, these emerging-market
banks generally tend to be well capitalized, aren't as heavily
exposed to property markets, and have significant and growing
sources of non-interest income.
Banks are finally learning from the crisis they created. In 2010,
banks in emerging economies performed remarkably well in serving as
a stabilizing force in global economic recovery.
Overall, a key determinant for quick recovery will be the quality
of risk analysis and risk-awareness in decision-making and
incentive policies. So, we believe that accumulating larger capital
buffers over the cycle and reducing pointless complexity in
business will be crucial to banking performance.
Also, the primary attention of policymakers should be on
determining how much longer the fiscal stimulus should continue,
ensuring that it is not withdrawn before a clearer sign of economic
recovery is visible.
OPPORTUNITIES
Currently, financial institutions in the Zacks covered non-U.S.
bank universe with a Zacks #1 Rank (Strong Buy) are
Banco
Bilbao Vizcaya Argentaria, S.A. (BBVA) and
Grupo
Financiero Galicia S.A. (GGAL). Banks that we like with a
Zacks #2 Rank (Buy) include
Banco Bradesco S.A.
(BBD),
Itau Unibanco Banco Holding S.A. (ITUB),
Deutsche Bank AG (DB),
National Australia
Bank Limited (NAZBY),
Shinhan Financial Group Co.
Ltd. (SHG) and
Westpac Banking
Corporation (WBK).
We also like
HDFC Bank Limited (HDB) and
ICICI Bank Limited (IBN) in India with a Zacks #3
Rank (Hold). Both of these banks have recently been emphasizing
strong cost controls and improved operating efficiency, rather than
growth, as key strategies. As a result, these banks have been able
to offset some of the earnings pressure from higher loss provisions
due to weakening asset quality. We anticipate continued synergies
from these banks’ cost-containment measures and operating
efficiency.
Other Zacks #3 Rank stocks in the non-U.S. bank universe include
Banco Santander-Chile (SAN),
Banco de
Chile (BCH),
Banco Santander, S.A. (STD),
Bank of Montreal (BMO),
The Bank Of Nova
Scotia (BNS),
Canadian Imperial Bank of
Commerce (CM), Credit Suisse Group, UBS AG,
KB
Financial Group, Inc. (KB) and
Royal Bank of
Canada (RY).
WEAKNESSES
We would suggest avoiding banks in Greece at this point. Also, it
is better to steer clear of banks in Great Britain and Ireland,
particularly those that have participated in government
recapitalization programs and have yet to reimburse the money. In
return for government capital and asset quality protection, these
banks are facing regulatory intervention, like enforcing limits on
dividend payouts and board member nominations.
Currently, there are three stocks in the Zacks covered non-U.S.
bank universe with a Zacks #4 Rank (Sell), namely
Lloyds
Banking Group plc (LYG),
National Bank of Greece
SA (NBG) and
The Toronto-Dominion Bank
(TD).
Specific banks that we dislike with a Zacks #5 Rank (Strong Sell)
are
Barclays plc (BCS) and
HSBC Holdings
plc (HBC).
BANCO BRADESCO (BBD): Free Stock Analysis Report
BANCO BILBAO VZ (BBVA): Free Stock Analysis Report
BANCO DE CHILE (BCH): Free Stock Analysis Report
CREDIT SUISSE (CS): Free Stock Analysis Report
DEUTSCHE BK AG (DB): Free Stock Analysis Report
GRUPO GALIC ADR (GGAL): Free Stock Analysis Report
HDFC BANK LTD (HDB): Free Stock Analysis Report
ICICI BANK LTD (IBN): Free Stock Analysis Report
BANCO ITAU -ADR (ITUB): Free Stock Analysis Report
NATL AUS BK LTD (NABZY): Free Stock Analysis Report
BANCO SANT -ADR (SAN): Free Stock Analysis Report
SHINHAN FIN-ADR (SHG): Free Stock Analysis Report
BANCO SANTAN SA (STD): Free Stock Analysis Report
UBS AG (UBS): Free Stock Analysis Report
WESTPAC BK ADR (WBK): Free Stock Analysis Report
Zacks Investment Research
Grafico Azioni Banco de Chile (NYSE:BCH)
Storico
Da Giu 2024 a Lug 2024
Grafico Azioni Banco de Chile (NYSE:BCH)
Storico
Da Lug 2023 a Lug 2024