The state of the U.S. banking system has been a subject of intense debate due to the failure of three U.S. regional banks earlier this year, marking the most prominent banking crisis since the global financial crisis of 2008. One of the primary reasons for their failure was the aggressive interest rate hikes by the Federal Reserve since last year.
Despite measures taken by the financial regulators to restore stability in the banking system, investors and depositors are still concerned. Given this backdrop, it could be wise to add fundamentally strong bank stocks KB Financial Group Inc. (KB), Banco Macro S.A. (BMA), and Banco BBVA Argentina S.A. (BBAR).
Before diving deeper into the fundamentals of these stocks, let’s discuss what’s happening in the U.S. banking industry and why it could be prudent to add these foreign bank stocks to one’s watchlist.
The collapse of the First Republic Bank came just weeks after the failures of Silicon Valley Bank and Signature Bank. Concerns over the safety of their deposits caused depositors to take their money out of these banks, leading to a bank run. The failures caused an upheaval in the banking industry.
According to the Federal Deposit Insurance Corporation (FDIC), U.S. banks lost $472 billion in deposits during the first quarter. Depositors withdrew their deposits and deposited them into large banks and higher-yielding money market funds. Deutsche Bank analysts said in a client note, “Our baseline does not anticipate a further intensification of banking stresses.”
Meanwhile, U.S. banks are also highly likely to face regulatory challenges like increased capital requirements, heightened supervision, stricter risk management, increased disclosure, etc. Tighter credit standards are also expected to lead to an increase in their operational costs and reduce their lending volumes, piling further pressure on their profitability.
Fitch Ratings expects weaker financial performance for U.S. banks in 2023. Considering these factors, it could be wise to add the featured foreign banking names to one’s watchlist to benefit from more stable industry conditions in their respective economies.
Let’s take a closer look at their fundamentals.
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.
In terms of non-GAAP PEG, KB’s 0.42x is 65.4% lower than the 1.23x industry average. Its 1.12x forward Price/Sales is 49.8% lower than the 2.24x industry average. Likewise, its 3.99x trailing-12-month non-GAAP P/E is 55.2% lower than the 8.90x industry average.
KB’s net interest income for the first quarter ended March 31, 2023, increased 5.1% year-over-year to KRW2.78 trillion ($2.16 billion). Its net operating profit increased 11.2% year-over-year to KRW2.13 trillion ($1.66 billion). The company’s profit attributable to controlling interests increased 1.9% year-over-year KRW1.50 trillion ($1.17 billion).
Analysts expect KB’s EPS for the quarter ending September 30, 2023, to increase 20.3% year-over-year to $2.61. Its revenue for the quarter ending June 30, 2023, is expected to increase 5.6% year-over-year to $2.97 billion. Over the past nine months, the stock has gained 3.1% to close the last trading session at $36.86.
KB’s POWR Ratings reflect solid prospects. The stock has an overall rating of B, equating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It is ranked #3 out of 89 stocks in the Foreign Banks industry. The company has an A grade for Stability and a B for Value and Momentum. To see the additional POWR Ratings of KB for Growth, Sentiment, and Quality, click here.
Banco Macro S.A. (BMA)
Headquartered in Buenos Aires, Argentina, BMA provides various banking products and services to retail and corporate customers in Argentina. It offers various retail banking products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, automobile loans, overdrafts, credit-related services, utility payments, and money transfers.
In terms of forward Price/Book, BMA’s 0.62x is 35.7% lower than the 0.97x industry average. Likewise, its 3.58x forward non-GAAP P/E is 59.8% lower than the 8.90x industry average.
For the fiscal first quarter ended March 31, 2023, BMA’s net interest income + net fee income rose 12% year-over-year to ARS119.69 billion ($480.07 million). Its net operating income increased 28% over the prior-year quarter to ARS167.80 billion ($673.03 million). Its net income from continuing operations came in at ARS9.78 billion ($39.23 million).
Analysts expect BMA’s EPS for the quarter ended June 30, 2023, to increase 190.4% year-over-year to $1.51. Its revenue for fiscal 2024 is expected to increase 134.7% year-over-year to $2.64 billion. Over the past year, the stock has gained 116% to close the last trading session at $25.92.
BMA’s POWR Ratings reflect this positive outlook. It has an overall rating of B, which translates to Buy in our proprietary rating system.
It is ranked #4 in the same industry. It has a B grade for Growth, Value, Momentum, and Quality. Click here to see the other ratings of BMA for Stability and Sentiment.
Banco BBVA Argentina S.A. (BBAR)
Headquartered in Buenos Aires, Argentina, BBAR provides various banking products and services to retail and corporate customers in Argentina. It offers various retail banking products and services, such as savings and checking accounts, time deposits, credit and debit cards, consumer finance loans, mortgage loans, and automobile loans. The company also provides personal loans, document discounts, and overdrafts.
In terms of forward Price/Book, BBAR’s 0.82x is 15% lower than the 0.97x industry average. Its 0.95x forward Price/Sales is 57.7% lower than the 2.24x industry average. Likewise, its 2.99x forward non-GAAP P/E is 66.5% lower than the 8.90x industry average.
BBAR’s net interest income for the fiscal first quarter ended March 31, 2023, increased 63.7% year-over-year to ARS131.19 billion ($526.20 million). Its net operating income rose 37.3% year-over-year to ARS147.90 billion ($593.22 million). The company’s net income for the period rose 82.2% over the prior-year quarter to ARS15.02 billion ($60.24 million).
Street estimates BBAR’s EPS for the quarter ending September 30, 2023, to increase 40% year-over-year to $0.41. Its revenue for fiscal 2023 is expected to increase 33.6% year-over-year to $2.59 billion. It surpassed the consensus EPS estimates in each of the trailing four quarters. Over the past year, the stock has gained 139.1% to close the last trading session at $6.12.
BBAR’s strong fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, which equates to a Buy in our proprietary rating system.
It has an A grade for Value and a B for Growth and Momentum. Within the Foreign Banks industry, it is ranked #2. To see the other ratings of BBAR for Stability, Sentiment, and Quality, click here.
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KB shares were trading at $36.36 per share on Wednesday morning, down $0.50 (-1.36%). Year-to-date, KB has declined -5.18%, versus a 14.76% rise in the benchmark S&P 500 index during the same period.
About the Author: Dipanjan Banchur
Since he was in grade school, Dipanjan was interested in the stock market. This led to him obtaining a master’s degree in Finance and Accounting. Currently, as an investment analyst and financial journalist, Dipanjan has a strong interest in reading and analyzing emerging trends in financial markets.
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