Are banking stocks gaining fresh traction now?
Team Veye | 05-Feb-2023
Search for long term investment opportunities often leads to a familiar destination, banking sector. Though, while scouting for investment in banking stocks, it must be kept in mind that these stocks are broadly influenced by the same factors affecting shares of other companies, like overall sentiment, valuations and general economic conditions.
Banking stocks are, generally considered to be good for long term investment and for generating passive income in the form of dividends. However, they are prone to getting affected by interest rate hikes and credit default risks.
The banking stocks, in spite of these risks are comparatively safe bets because of the strong regulations, particularly coming after 2008 financial crisis, which at that time had led U.S. banking industry on verge of a collapse. Now banks have to comply with capital requirements and maintain adequate CET1 Ratio, to avert/withstand any financial distress.
The banking industry in Australia is expected to witness transformative modifications over the coming decade. Banks are working to enhance technological presence as digitalisation is already leading to changes in customer behaviour. The banks with the use of latest technology are making their services easily accessible.
Urge to make banking more customer friendly will fuel regular product innovation to stay competitive and could enhance the customer experience and boost productivity. To promote expansion and raising profitability, customers are now being encouraged the use of apps aided by data analytics.
Based on the global climate of high interest rates, banks may be capable of reporting higher margins. Moreover, the world is transitioning quickly from conventional to renewable energy sources, which being capital intensive may open another stream of loan generation for the banks.
With interest rates probably having peaked, the real estate sector may see a resurgence soon. Though Australian property investors have historically received high capital gains returns, increasing rents enabling high rental yields may bring an early cheer to this market and ensure a pick up in home loan growth.
Improving asset quality and better capital adequacy is expected to further help the return ratios of banks. The market having already discounted these positives have resulted in an improvement in the valuations.
Banking stocks not only offer high dividend yields and growth opportunities for investors but are also able to stand up against any economic crisis that may occur in the future.
Veye Pty Ltd(ABN 58 623 120 865), holds (AFSL No. 523157 ). All information provided by Veye Pty Ltd through its website, reports, and newsletters is general financial product advice only and should not be considered a personal recommendation to buy or sell any asset or security. Before acting on the advice, you should consider whether it’s appropriate to you, in light of your objectives, financial situation, or needs. You should look at the Product Disclosure Statement or other offer document associated with the security or product before making a decision on acquiring the security or product. You can refer to our Terms & Conditions and Financial Services Guide for more information. Any recommendation contained herein may not be suitable for all investors as it does not take into account your personal financial needs or investment objectives. Although Veye takes the utmost care to ensure accuracy of the content and that the information is gathered and processed from reliable resources, we strongly recommend that you seek professional advice from your financial advisor or stockbroker before making any investment decision based on any of our recommendations. All the information we share represents our views on the date of publishing as stocks are subject to real time changes and therefore may change without notice. Please remember that investments can go up and down and past performance is not necessarily indicative of future returns. We request our readers not to interpret our reports as direct recommendations. To the extent permitted by law, Veye Pty Ltd excludes all liability for any loss or damage arising from the use of this website and any information published (including any indirect or consequential loss, any data loss, or data corruption) (as mentioned on the website www.veye.com.au), and confirms that the employees and/or associates of Veye Pty Ltd do not hold positions in any of the financial products covered on the website on the date of publishing this report. Veye Pty Ltd hereby limits its liability, to the extent permitted by law to the resupply of services.