The UK’s perennially troubled banks have undergone something of a reputational makeover since the battle to tame inflation caused interest rates to spike. The monetary tightening cycle has significantly increased the sector's net interest margins, meaning that banks are making serious money from their core activities for the first time since the 2008 financial crisis.
Tip style
Value
Risk rating
High
Timescale
Medium Term
Bull points
- Favourable macro environment
- Compelling turnaround plan
- Successful UK retail business
- £10bn to be returned to shareholders
Bear points
- Poor track record
- Execution risk
Investors are showing cautious interest, with NatWest (NWG) earning admirers for its effective management, capital returns and rapidly shrinking government stake. Despite a shift in sentiment and improvements in profitability, however, UK banks still trade on an average price/earnings (PE) ratio of just six times.