Bank valuations could rise by $7 trillion in five years, study finds

Global banks could boost their valuations by a combined $7 trillion in the next five years if they take major steps to promote growth and boost productivity, the Boston Consulting Group said in a report on Monday.

Lenders could roughly double their current valuations if they pursue growth and improved price-to-book ratios despite obstacles, the consultant said.

"The largest driver of pessimism about the banking sector has been the significant drop in profitability," BGC said.

About 75% of bank stocks had price-to-book ratios below 1 in 2022, while price-to-earnings multiples were almost half of 2008 levels. Meanwhile, shareholder returns on bank stocks have lagged those of major market indexes since the crisis, and the gap is widening.

Even if they invest in productivity and radically simplify their businesses, bank profits will remain under pressure from higher capital requirements and increased competition from newer players such as fintechs, BCG said.

"Banks are not likely to return to the profitability levels and valuations that existed prior to the global financial crisis," the consultant said.