In a recent report, the Boston Consulting Group (BCG) has outlined a potential $7 trillion surge in the combined valuations of global banks over the next five years.
This is based on a Reuters report.
This forecast is contingent on significant measures taken by banks to stimulate growth and enhance productivity.
BCG suggests that banks could effectively double their current valuations by focusing on expansion and refining their price-to-book ratios, even in the face of existing challenges.
The study from BCG addresses a prevalent concern within the banking sector — a substantial decline in profitability.
The report notes that around 75 per cent of bank stocks exhibited price-to-book ratios below 1 in 2022.
Furthermore, price-to-earnings multiples were nearly half of the levels seen in 2008.
Shareholder returns on bank stocks have consistently fallen behind those of major market indexes since the financial crisis.
Despite the optimistic outlook presented by BCG, challenges loom for the banking industry.
The study acknowledges that even with investments in productivity and streamlined business operations, banks will face ongoing pressure due to higher capital requirements and intensified competition from emerging players like fintech companies.
BCG emphasises that returning to pre-financial crisis levels of profitability and valuations is an unlikely scenario for banks.
(With inputs from Reuters)
