Is it time to invest in banks?

In our central scenario in Europe, with high inflation and moderate growth (after the Russia-Ukraine conflict), we believe it is a good time to start considering investing in banks after the sharp falls in the stock market experienced by the sector.

The European banking sector is better positioned than in previous crises to cope with the current situation (healthy balance sheets with low levels of non-performing loans and excess capital). Despite the fact that interest rate hikes could be more moderate than expected or could be delayed due to a slowdown in economic growth, we believe that at current valuations (PER23E of 6.5x; price/book value of 0.7x and dividend yield of 6.5%) we could find investment opportunities within the sector.

However, in a situation like the current one, the sector is not risk-free, especially if the conflict is prolonged and leads to a revision of our central scenario. To that end and to minimize risks, we would be very selective in our choice of stocks, looking for defensive business models, with diversified sources of income (banks with insurance and asset management businesses), capital buffers (that do not put the dividend policy at risk) and low default rates.

Cristina Benito, Head of Equities at MAPFRE AM