The banking industry displayed admirable resilience and stability in 2023. Amid the banks’ efforts to streamline their structures, honing in on core operations – there are projections of higher costs in the short term, inflicting some degree of impact on immediate bottom-line growth. Given this backdrop, quality foreign bank stocks Akbank T.A.S. (AKBTY), KB Financial Group (KB), and Erste Group Bank AG (EBKDY), primed for untapped growth in 2024, could be solid buys now. Read on….
2023 presented a challenging landscape for banking institutions as they grappled with operational and macroeconomic hurdles. However, banks skillfully navigated these obstacles. Aided by rising interest rates, banks managed to boost their top-line growth.
Furthermore, the anticipated continuation of this high-interest environment poses a profitable future, with the prospect of increasing net interest income and margins. Given this backdrop, foreign banks Akbank T.A.S. (AKBTY), KB Financial Group Inc. (KB), and Erste Group Bank AG (EBKDY) could be solid buys for 2024.
Foreign banks offer various services and products to American customers, catering to both individual and corporate clients who run operations in the U.S. Central banks worldwide have implemented measures to buffer their economies from the 2020 pandemic-induced financial downturn, including reducing benchmark interest rates to historic lows. Although beneficial for immediate economic recovery, these measures have significantly eaten into bank profitability.
The journey to economic recovery presents its challenges, with progress inconsistent in developed nations housing major foreign banks and emerging nations. This inconsistency has caused global disruption in banking operations.
As many foreign banks may possess federal and state-chartered offices within the U.S., the Federal Reserve holds significant influence over their domestic operations. The decision by the Fed to increase the benchmark interest rate signifies an encouraging shift for the banking sector; higher interest rates prompt a rise in banks’ net interest income.
Although these higher rates typically favor banks, they can also limit loan growth by inflating borrowing and deposit costs. That said, anticipated reductions could stimulate demand for goods and services, thereby catalyzing an increase in bank lending.
Moreover, several foreign banks are pursuing extensive business restructuring efforts, divesting or closing non-critical operations to concentrate more on their core businesses and regions. Although these restructuring measures are expected to spur long-term growth, they have led to a short-term rise in expenses. Technology-related costs are predicted to continue posing some degree of hindrance to banks’ bottom-line growth in the near term.
In light of these trends, let’s look at the fundamentals of the three fundamentally strong Foreign Banks stocks, beginning with number 3.
Stock #3: Akbank T.A.S. (AKBTY)
Headquartered in Istanbul, Turkey, AKBTY provides various banking products and services in Turkey and internationally. It operates through: Retail Banking; Commercial Banking, SME Banking, Corporate-Investment and Private Banking; and Wealth Management Treasury segments.
Its annualized dividend rate of $0.18 per share translates to a dividend yield of 7.35% on the current share price. Its four-year average yield is 3.13%. Its dividend payments grew at a CAGR of 7.8% over the past five years.
AKBTY’s trailing-12-month net income margin of 52.92% is 109.9% higher than the 25.21% industry average. Likewise, its trailing-12-month ROCE and ROTA of 46.34% and 4.27% are 297% and 269.1% higher than the industry averages of 11.67% and 1.16%, respectively.
AKBTY’s trailing-12-month GAAP PEG of 0.03x is 91.6% lower than the 0.40x industry average. Its forward Price/Sales of 1.28x is 52.9% lower than the 2.71x industry average.
The company’s net interest income for the fiscal third quarter that ended September 2023, increased 117.4% sequentially to TL24.73 billion ($830.50 million). For the nine months that ended September 2023, its revenue increased 39.1% to TL72.70 billion ($2.44 billion). Moreover, its net income increased 34.7% year-over-year to TL51.47 billion ($1.73 billion).
AKBTY’s total assets for the nine months that ended September 30, 2023, increased 50% year-over-year to TL1.72 trillion ($57.65 billion).
Street expects AKBTY’s revenue for the fiscal year 2023 (ended December 2023) to come to $5.01 billion. Its revenue for the fiscal year ending December 2024 is expected to increase 10% year-over-year to $5.51 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.
The stock has gained 54.4% over the past six months to close the last trading session at $2.44. Over the past nine months, it has gained 41.9%.
AKBTY’s POWR Ratings reflect its positive prospects. The stock has an overall B rating, equating to Buy in our proprietary rating system. The POWR Ratings are calculated by considering 118 distinct factors, with each factor weighted to an optimal degree.
The stock has a B grade for Value, Momentum, Stability, and Sentiment. Within the Foreign Banks industry, it is ranked #7 out of 89 stocks.
Beyond what we’ve stated above, we have also rated the stock for Growth and Quality. Get all ratings of AKBTY here.
Stock #2: KB Financial Group Inc. (KB)
Headquartered in Seoul, South Korea, KB provides a range of banking and related financial services to consumers and corporations worldwide. The company operates through seven segments: Retail Banking, Corporate Banking, Other Banking, Credit Card, Securities, Life Insurance, and Non-Life Insurance. It offers loans, deposit products, and other related financial products and services, investment banking, brokerage, etc.
On October 24, 2023, KB’s board of directors declared a quarterly dividend of KRW 510 per common share (total dividend amount: KRW 194,997,652,890). Its annualized dividend rate of $2.26 per share translates to a dividend yield of 5.62% on the current share price. Its four-year average yield is 5.52%. Its dividend payments grew at CAGRs of 8.2% and 4.7% over the past three and five years, respectively.
KB’s trailing-12-month net income margin of 32.94% is 30.7% higher than the 25.21% industry average. Likewise, its trailing-12-month cash from operations of $13.81 billion is significantly higher than the industry average of $140.56 million.
KB’s forward non-GAAP P/E of 4.21x is 60.5% lower than the 10.68x industry average. Its 1.24x forward Price/Sales is 54.4% lower than the 2.71x industry average.
KB’s net interest income for nine months ended September 30, 2023, increased 5.3% year-over-year to KRW8.85 trillion ($6.75 billion). Its net operating profit increased 20% year-over-year to KRW6.13 trillion ($4.68 billion). The company’s profit for the period increased 7.4% year-over-year KRW4.35 trillion ($3.32 billion).
Analysts expect KB’s revenue and EPS for the fiscal year 2023 (ended December 2023), to increase 10.5% and 16.9% year-over-year to $12.59 billion and $9.66, respectively. The company surpassed consensus revenue estimates in three of the trailing four quarters.
Over the past six months, the stock has gained 7.3% to close the last trading session at $40.18. It has gained 10.8% over the past nine months.
KB’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, equating to a Buy in our proprietary rating system.
It has an A grade for Stability and a B for Value and Momentum. It is ranked #3 within the same industry.
Click here to see KB’s additional ratings for Growth, Sentiment, and Quality.
Stock #1: Erste Group Bank AG (EBKDY)
Headquartered in Vienna, Austria, EBKDY provides a range of banking and other financial services to retail, corporate, and public sector customers. The company operates through Retail, Corporates, Group Markets, Asset/Liability Management & Local Corporate Center, Savings Banks, and Group Corporate Center segments. It provides mortgage and consumer loans, investment products, current accounts, and savings products.
EBKDY plans for a dividend of €2.7 per share for the 2023 fiscal year. Its annualized dividend rate translates to a dividend yield of 5.15% on the current share price. Its four-year average yield is 4.25%. Its dividend payments grew at a CAGR of 8% over the past five years.
The share buy-back in a volume of up to €300 million is progressing well. The share buyback program started on August 16, 2023, and by the reporting date of September 30, 2023, 4,050,690 treasury shares with acquisition costs of €133 million had been repurchased.
EBKDY’s trailing-12-month net income margin of 28.63% is 13.6% higher than the 25.21% industry average. Likewise, its trailing-12-month cash per share of $12.24 is 79.2% higher than the industry average of $6.83.
EBKDY’s forward GAAP P/E of 5.38x is 51.7% lower than the 11.14x industry average. Its 1.42x forward Price/Sales is 47.8% lower than the 2.71x industry average.
EBKDY’s net interest income for the fiscal third quarter that ended September 30, 2023, increased 20.2% year-over-year to €1.86 billion ($2.03 billion). Its net result attributable to owners of the parent increased 60.7% year-over-year to €819.70 million ($896.11 million).
The company’s operating result rose 44.8% year-over-year to €1.49 billion ($1.63 billion). Its CET1 ratio came in at 14.5%, compared to 13.8% in the year-ago quarter.
Analysts expect EBKDY’s revenue and EPS for the fiscal year 2023 (ended December 2023), to increase 26.5% and 43.4% year-over-year to $11.47 billion and $3.76, respectively.
Over the past year, the stock has gained 22.6% to close the last trading session at $19.88. It has gained 19.5% over the past nine months.
EBKDY’s robust prospects are reflected in its POWR Ratings. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It has a B grade for Growth, Value, Momentum, Stability, and Sentiment. It is ranked first within the same industry.
To see the other ratings of EBKDY (Quality), click here.
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EBKDY shares were unchanged in premarket trading Thursday. Year-to-date, EBKDY has declined -2.74%, versus a -1.37% rise in the benchmark S&P 500 index during the same period.
Sristi Suman Jayaswal
The stock market dynamics sparked Sristi’s interest during her school days, which led her to become a financial journalist. Investing in undervalued stocks with solid long-term growth prospects is her preferred strategy.
Having earned a master’s degree in Accounting and Finance, Sristi hopes to deepen her investment research experience and better guide investors.
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