3 Foreign Bank Stocks Primed for Untapped Growth in 2024

The banking industry displayed admirable resilience and stability in 2023. Amid the banks’ efforts to streamline their structures, honing in on core operations – there are projections of higher costs in the short term, inflicting some degree of impact on immediate bottom-line growth. Given this backdrop, quality foreign bank stocks Akbank T.A.S. (AKBTY), KB Financial Group (KB), and Erste Group Bank AG (EBKDY), primed for untapped growth in 2024, could be solid buys now. Read on….

2023 presented a challenging landscape for banking institutions as they grappled with operational and macroeconomic hurdles. However, banks skillfully navigated these obstacles. Aided by rising interest rates, banks managed to boost their top-line growth.

Furthermore, the anticipated continuation of this high-interest environment poses a profitable future, with the prospect of increasing net interest income and margins. Given this backdrop, foreign banks Akbank T.A.S. (AKBTY), KB Financial Group Inc. (KB), and Erste Group Bank AG (EBKDY) could be solid buys for 2024.

Foreign banks offer various services and products to American customers, catering to both individual and corporate clients who run operations in the U.S. Central banks worldwide have implemented measures to buffer their economies from the 2020 pandemic-induced financial downturn, including reducing benchmark interest rates to historic lows. Although beneficial for immediate economic recovery, these measures have significantly eaten into bank profitability.

The journey to economic recovery presents its challenges, with progress inconsistent in developed nations housing major foreign banks and emerging nations. This inconsistency has caused global disruption in banking operations.

As many foreign banks may possess federal and state-chartered offices within the U.S., the Federal Reserve holds significant influence over their domestic operations. The decision by the Fed to increase the benchmark interest rate signifies an encouraging shift for the banking sector; higher interest rates prompt a rise in banks’ net interest income.

Although these higher rates typically favor banks, they can also limit loan growth by inflating borrowing and deposit costs. That said, anticipated reductions could stimulate demand for goods and services, thereby catalyzing an increase in bank lending.

Moreover, several foreign banks are pursuing extensive business restructuring efforts, divesting or closing non-critical operations to concentrate more on their core businesses and regions. Although these restructuring measures are expected to spur long-term growth, they have led to a short-term rise in expenses. Technology-related costs are predicted to continue posing some degree of hindrance to banks’ bottom-line growth in the near term.

In light of these trends, let’s look at the fundamentals of the three fundamentally strong Foreign Banks stocks, beginning with number 3.

Stock #3: Akbank T.A.S. (AKBTY)

Headquartered in Istanbul, Turkey, AKBTY provides various banking products and services in Turkey and internationally. It operates through: Retail Banking; Commercial Banking, SME Banking, Corporate-Investment and Private Banking; and Wealth Management Treasury segments.

Its annualized dividend rate of $0.18 per share translates to a dividend yield of 7.35% on the current share price. Its four-year average yield is 3.13%. Its dividend payments grew at a CAGR of 7.8% over the past five years.

AKBTY’s trailing-12-month net income margin of 52.92% is 109.9% higher than the 25.21% industry average. Likewise, its trailing-12-month ROCE and ROTA of 46.34% and 4.27% are 297% and 269.1% higher than the industry averages of 11.67% and 1.16%, respectively.

AKBTY’s trailing-12-month GAAP PEG of 0.03x is 91.6% lower than the 0.40x industry average. Its forward Price/Sales of 1.28x is 52.9% lower than the 2.71x industry average.

The company’s net interest income for the fiscal third quarter that ended September 2023, increased 117.4% sequentially to TL24.73 billion ($830.50 million). For the nine months that ended September 2023, its revenue increased 39.1% to TL72.70 billion ($2.44 billion). Moreover, its net income increased 34.7% year-over-year to TL51.47 billion ($1.73 billion).

AKBTY’s total assets for the nine months that ended September 30, 2023, increased 50% year-over-year to TL1.72 trillion ($57.65 billion).

Street expects AKBTY’s revenue for the fiscal year 2023 (ended December 2023) to come to $5.01 billion. Its revenue for the fiscal year ending December 2024 is expected to increase 10% year-over-year to $5.51 billion. The company surpassed consensus revenue estimates in each of the trailing four quarters, which is impressive.

The stock has gained 54.4% over the past six months to close the last trading session at $2.44. Over the past nine months, it has gained 41.9%.

AKBTY’s POWR Ratings reflect its positive prospects. The stock has an overall B…