FTSE 350 Review: Are bank shares still worth owning?

Inevitably, the outlook is more nuanced than this scenario implies. A resilient consumer, coupled with interest rates that are lower but still far from the floor (analysts are working on a base rate assumption of 3.25 per cent by 2026) could mean fewer delinquent debts and wider margins.

In any case there are some banks, particularly the smaller niche players, that have shown they can navigate the recent headwinds. In this context, questions have to be asked about whether scale has delivered the promised savings that the market demands. Consider also that challenger banks are slowly but surely eating away at the market dominance of the big five high-street banks when it comes to underserved niches.

For instance, players such as OakNorth have moved into catering to the SMEs who feel they don't get the right service from the UK giants; the company has become cash flow positive within a year of gaining a banking licence by focusing only on this market. With other fintechs such as Wise (WISE) hoovering up cross-border transactions and set for further growth this year, the main players have more competition than they had in the past.   

Still, it is undoubtedly true that investors have had to put up with a lot from listed banks, not least over the past 12 months. From the threat of contagion after the US sector's wobble last spring to the Nigel Farage affair, which cost NatWest (NWG) chief executive Dame Alison Rose her job, the sector has managed to generate both tragedy and farce in equal measure. While undoubtedly there will be black swans lurking somewhere this year, shareholders are at least earning some sort of return.  

For example, the return to capital distributions in the aftermath of the pandemic was a welcome relief for a sector that endured a blanket dividend ban in the decade after the 2008 financial crisis. But even here the news is mixed. While investors enjoyed the fruits of £22bn of capital distribution over the past year, they have also had to endure an £18bn collective fall in market value. In other words,by this metric their patience only yielded a measly net return of £4bn.

The good news for the likes of Barclays (BARC), HSBC (HSBA), Virgin Money (VMUK) and Lloyds Banking Group (LLOY) is that there are signs that the deposit churn that hit margins last year seems to be easing. According to Numis, towards the end of last year the amount deposited in term accounts increased by just 0.3 percentage points, implying that the growth in term deposits will be just 5 percentage points this year, compared with the 10 per cent that had been predicted. This should ease the pressure on banking margins as more savers stay put.