Banking sector shares again
performed poorly in 2010, underperforming global equities by a
double digit rate. With a few exceptions in the emerging markets,
it was another year to forget. Looking ahead to 2011, it is banks
in these markets that are likely to offer superior growth
prospects. Douglas Blakey reports.
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The worst-performing four markets for bank shares in
2010 – Portugal, Ireland, Greece and Spain – will raise few
eyebrows.
Macro economic storms are likely to
harm sector prospects in the short term in the four markets, with
bank sector performance likely to remain depressed.
The top four markets – Sri Lanka,
Argentina, Taiwan and the Philippines – are more noteworthy.
Asia is expected to remain the
fastest-growing region in the world in 2011, with GDP growth of
7.2% in 2011 helping the majority of banks there to continue
experiencing top-line growth.
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By GlobalDataBanking sectors forecast to perform
strongly in 2011 include Indonesia and the Philippines.
Low credit penetration, favourable
demographics and strong balance sheets will all help to boost
banking sector performance in the emerging markets.
In the more developed markets,
depressed credit demand will remain a key issue in 2011.
Margin pressure is also expected to
persist while gloomy market expectations over a return to dividend
payments will all serve to bear down on share prices.
In 2010, banking sector shares in
the UK and US recovered only modestly – up by 3.45% and 11.39%
respectively.
While US banks appear to be well
funded and credit trends are improving, margin pressure and
increased regulations are expected to deter investors.
Little to cheer
investors
In particular, the impact of
bearing down on overdraft fees and a slower rate of mortgage
refinancing will adversely affect non-interest income and provide
hardly any cheer for investors.
Mature markets which may offer
better prospects in 2011 include Canada – the sector is well
capitalised and has a strong record of capital distribution; higher
dividend payments are expected for 2011.
In 2010, BBVA, UniCredit and
Santander were among the worst-performing shares out of a selected
group of the world’s largest bank stocks (see table,
right).
With increasing concerns over Spain’s sovereign debt, exposure
to local government banks and margin pressure, it is difficult to
be positive about share price prospects at Santander or peers
Sabadell and Banco Popular.
