“With the UK and Irish economies continuing to improve, we see substantial upside for UK banks from here, even after the sharp rally that has taken place in the last 18 months.”
Schroders’ equities manager Jessica Ground agrees that the UK banking sector has come a long way.
“Broadly speaking, the amount of capital that UK banks hold has doubled, and £100bn of new equity has been injected,” she says. “There is a new generation of management who realise that bigger is not better and are focused on cutting costs and returning capital to shareholders rather than making acquisitions. Shareholders are more aware of the need to act on corporate governance concerns before they spiral out of control. Funding models have been diversified and balance sheet liquidity improved. Loan to deposit ratios are lower and there is less reliance on short-term funding, which can dry up alarmingly quickly.”
Before long a healthy UK banking sector will once again reign supreme for income-seeking investors.
Jenny Lowe is features editor at Investment Adviser
