In 2023, the global banking sector faced adversity, as evidenced by the collapse of several prominent U.S. banks and the need for Credit Suisse's rescue. However, despite these challenges, banking sectors across most countries demonstrated resilience, supported by tightening monetary policies, which strengthened their net interest income without significantly impacting lending costs.
Additionally, the expanding utilization of Artificial Intelligence (AI) within the industry is poised to augment operational efficiency. Against the backdrop, owning the shares of three fundamentally sound banking stocks, KB Financial Group Inc. (KB), Erste Group Bank AG (EBKDY), and BayCom Corp (BCML), might be profitable.
The banking industry has benefited greatly from higher interest rates. In 2022, there was a significant increase in net interest income across many regions, with American and Canadian banks leading the way with an impressive 18% year-over-year rise, followed closely by their European counterparts with an 11% year-over-year surge.
While banks typically excel in high-interest rate environments, extended periods of elevated rates can intensify funding costs and squeeze margins. Consequently, anticipated reductions in rates may foster demand for goods and services, prompting a potential uptick in bank lending activity.
Meanwhile, AI has become increasingly prevalent in the banking industry, revolutionizing various aspects of banking operations and customer interactions. The projected growth of the global AI in the banking market is substantial, with estimates indicating it will reach an impressive $236.70 billion by 2032, demonstrating a robust CAGR of 31.7% spanning 2024 to 2032
With the escalating volume of digital transactions, banks are ramping up their fraud detection efforts using AI. When integrated with machine learning, AI becomes even more effective, enabling banks to identify fraud, mitigate risks, enhance security, and identify weaknesses in banking systems.
Accenture predicts that banks will derive greater benefits from AI compared to other industries, with the potential for productivity to increase by 20% to 30% and revenue to grow by 6%.
Considering the favorable industry outlook, let’s now dig deeper into the fundamentals of the featured banking stocks in detail:
KB Financial Group Inc. (KB)
Headquartered in Seoul, South Korea, KB provides a range of banking and related financial services to consumers and corporations in South Korea and internationally. The company operates through seven segments: Retail Banking; Corporate Banking; Other Banking; Credit Card; Securities; Life Insurance; and Non-Life Insurance.
KB’s trailing-12-month net income margin of 32.94% is 41.3% higher than the industry average of 23.31%. Its trailing-12-month CAPEX/Sales of 2.35% is 16.8% higher than the 2.01% industry average. Furthermore, the stock’s trailing-12-month cash per share of $54.09 is 812.3% higher than the $5.93 industry average.
For the fiscal year, which ended on December 31, 2023, KB’s net interest income increased 5.4% year-over-year to KRW12.14 trillion ($9.13 billion), while its net operating profit rose 27.7% from the year-ago value to KRW6.44 trillion ($4.84 billion). Moreover, the company’s profit for the period came in at KRW4.56 trillion ($3.43 billion), up 16.1% year-over-year.
The consensus revenue estimate of $12.33 billion for the fiscal year ending December 2024 represents an 8.3% improvement year-over-year. Meanwhile, the consensus EPS estimate of $8.96 for the same period reflects an 8.5% year-over-year surge. Additionally, the company has an impressive revenue surprise history, surpassing its revenue estimates in three of the trailing four quarters.
KB’s revenue and total assets have grown at CAGRs of 8.9% and 5.8% over the past three years, respectively. While its net income and EPS have increased at CAGRs of 11.5% and 10.1% during the same time frame, respectively.
Over the past month, the stock has surged 20.4% to close the last trading session at $47.28.
KB’s POWR Ratings reflect this promising outlook. The stock has an overall B rating, translating to a Buy in our proprietary rating system. The POWR Ratings assess stocks by 118 different factors, each with its own weighting.
It has a B grade for Value, Momentum, and Stability. In the 89-stock Foreign Banks industry, it is ranked #5. Click here to see KB’s ratings for Growth, Sentiment, and Quality.
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.
On October 5, 2023, EBKDY achieved a remarkable milestone by becoming the first Austrian financial services firm to launch an AI-driven solution with a focus on delivering financial knowledge in an engaging and easy-to-understand manner. Powered by AI technology from OpenAI and ChatGPT, this platform, known as the Financial Health Prototype, offers round-the-clock responses to inquiries related to finance.
The launch of this platform reflects EBKDY’s ongoing efforts to simplify the financial landscape for its customers. Moreover, Gerda Holzinger-Burgstaller, the CEO of EBKDY, emphasized that the institution is actively leveraging AI technology to bolster its capabilities and shape its future endeavors.
The stock’s trailing-12-month net income margin of 28.63% is 22.8% higher than the industry average of 23.31%. Its trailing-12-month CAPEX/Sales of 4.64% is 130.6% higher than the 2.01% industry average. Furthermore, EBKDY’s trailing-12-month cash per share of $12.24 is 106.4% higher than the $5.93 industry average.
EBKDY’s net interest income for the fiscal third quarter (ended September 30, 2023) increased 20.2% year-over-year to €1.86 billion ($1.99 billion). Its net result attributable to owners of the parent improved 60.7% from the year-ago value to €819.70 million ($880.79 million). In addition, the company’s operating result rose 44.8% from the prior-year quarter to €1.49 billion ($1.60 billion).
Analysts predict EBKDY’s revenue and EPS for the fiscal year ended December 2023 to increase 24.3% and 49.2% year-over-year to $11.27 billion and $3.91, respectively. Moreover, the company surpassed its revenue estimates in three of the trailing four quarters and EPS estimates in each of the trailing four quarters, which is excellent.
Also, EBKDY’s revenue and total assets have improved at CAGRs of 16.8% and 7.4% over the past three years, respectively. Likewise, its net income and EPS have grown at CAGRs of 47.3% and 51.7% during the same period, respectively.
EBKDY’s shares have climbed 16.2% over the past three months to close the last trading session at $21.44.
EBKDY’s strong fundamentals are reflected in its POWR Ratings. It has an overall rating of B, which equates to Buy in our proprietary rating system.
It has a B grade for Growth, Momentum, Stability, and Sentiment. Within the same Foreign Banks industry, it is ranked #2. Click here to see the other ratings of EBKDY for Value and Quality.
BayCom Corp (BCML)
BCML operates as the bank holding company for United Business Bank, which provides various financial services to small and mid-sized businesses, service professionals, and individuals. The company provides demand, savings, money market, and time deposit accounts.
On January 12, 2024, BCML paid its shareholders a quarterly dividend of $0.10 per share. The company’s annual dividend of $0.40 translates to a 1.99% yield on the prevailing price, while its four-year average dividend yield is 0.53%.
BCML’s trailing-12-month net income margin of 26.67% is 14.4% higher than the industry average of 23.31%. Furthermore, the stock’s trailing-12-month cash per share of $26.81 is 352.1% higher than the $5.93 industry average.
For the fiscal fourth quarter, which ended on December 31, 2023, BCML’s total interest and dividend income increased 9.1% from the year-ago value to $32.19 million.
During the same quarter, the company’s net income and net income per share came in at $6.39 million and $0.55, respectively. Its comprehensive income rose 19.8% from the prior-year quarter to $9.07 million.
Street expects BCML’s EPS for the fiscal 2024 first quarter (ending March 2024) to increase marginally year-over-year to $0.56. While its revenue for the ongoing quarter is projected to come in at $23.30 million.
Over the past three years, BCML’s revenue and total assets have grown at CAGRs of 10.3% and 5.1%, respectively. Meanwhile, its net income and EPS have increased at CAGRs of 25.9% and 25.6% over the same period, respectively.
The stock has gained 26.4% over the past nine months to close the last trading session at $20.09.
It’s no surprise that BCML has an overall rating of B, which equates to Buy in our proprietary rating system. It has a B grade for Value, Stability, and Sentiment. Out of 43 stocks in the Pacific Regional Banks industry, it is ranked first.
In addition to the POWR Ratings we’ve stated above, we also have BCML’s ratings for Growth, Momentum, and Quality. Get all BCML ratings here.
What To Do Next?
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KB shares were trading at $49.01 per share on Wednesday morning, up $1.73 (+3.66%). Year-to-date, KB has gained 18.47%, versus a 4.62% rise in the benchmark S&P 500 index during the same period.
About the Author: Anushka Mukherjee
Anushka's ultimate aim is to equip investors with essential knowledge that empowers them to make well-informed investment choices and attain sustained financial prosperity in the long run.
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