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15 Worst Performing Bank Stocks in 2023

Ramish Cheema
10 min read

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In this piece, we will take a look at the 15 worst performing bank stocks in 2023. If you want to skip our introduction to the banking industry, then head on over to 5 Worst Performing Bank Stocks in 2023.

The banking industry, primarily due to its high exposure to interest rate hikes, has been at the center of the economy lately. A bank's operations are sensitive to interest rate hikes. At one end, the bank rate determines the rate at which a bank borrows money from other banks. It lends out this money to corporate and individual clients and charges them a fee through the interest rate as well. The difference between the fee of a loan paid by a consumer and the rate that the bank is charged as bank rate is the interest rate spread - or a bank's profit. A higher bank rate makes it difficult for firms to raise credit since they are charged higher interest payments, a fact that was clear in Canada earlier this year.

Before we get to that, the difference between the impact of a bank rate increase on short term and long term lending rates is sometimes different too. Generally, interest rates for longer term bonds and instruments are generally higher than short term rates. However, a 22-year high interest rate has led to the current yield for two month bonds to sit at 5.26% while the yield for a 30 year treasury bond is 4.23%. This implies that the prices of long term bonds are higher than those of short term debt since move investors are flocking toward them. The tendency of buyers to prefer the stability of long term debt income is also viewed negatively in the stock market since it signals unease about the shorter term economic climate.

Short term rates, which increase rapidly in a high rate environment, are often tightly linked with the ability of consumers and corporations to spend. This fact was visible in Canada by the end of Q1 2023, according to Equifax Canada's credit trends report which outlines that the balance on longer term installment loans fell by 2.4% for the first time since 2019. However, consumers and businesses continued to take on short term credit in a tight environment where overall business openings fell as well. More businesses also became delinquent, in the financial and industrial sectors, as they failed to keep up with high inflation and other factors. If you want find out which Canadian firms performed well during this tough climate, then you can check out 11 Most Profitable Canadian Stocks.

In America, the high interest rate environment also led to a fall in the prices of bonds that were issued last year. Within a year or so, interest rates have hit a multi-decade high, and naturally this makes the bond market quite fast moving when it comes to setting prices. Several U.S. banks failed to maintain their asset value in the face of a sudden jump in client withdrawal, an event that created a chill at both the Federal Reserve and the Treasury Department. For more details, you can check out Top 20 Most Profitable Banks in the World.

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