BANK VALUATIONS BY COUNTRY

Data compiled by Credit Suisse about the valuations of major banks illustrates the gaps in bank valuation in different countries.

The charts – Price to Book Value 2022E and Price to Earnings 2022E – show the remarkable differences that exist between the valuations of quoted banks in individual countries across the world:

• The 5 countries with the highest valuations for both multiples are India, Australia, Indonesia, Saudi Arabia and South Africa
• Several of the  countries with the lowest rankings for P/E ratios and P/B values are the same – namely Turkey, Russia, Greece, South Korea and Hong Kong – as well as Pakistan, Italy, Germany. Political uncertainty as well as a long history of poorly-performing banks seem to be the main reasons for these low valuations.

These charts – Price to Book Value 2022E and Price to Earnings 2022E – show the remarkable differences that exist between the valuations of quoted banks in individual countries across the world.

We also illustrate the price to earnings estimates for banks across these countries for 2022.

As McKinsey’s Global Banking Annual Review 2021 concludes, banks are underperforming on two yardsticks: ROE, a measure of current profitability, and market-to-book value, a leading indicator of how capital markets value banking.

“Fifty-one percent of banks operate with an ROE below cost of equity (COE), and 17 percent are below COE by more than four percentage points. In an industry that has high capital requirements and is operating amid low interest rates, creating value for shareholders is structurally challenging…..The challenges facing a capital-intensive industry in a low-price environment also show up in valuations. Banks are trading at about 1.0 times book value, versus 3.0 times for all other industries and 1.3 times for financial institutions excluding banks, with 47 percent of banks trading for less than the equity on their books”, says the firm.