2 Foreign Bank Stocks to Buy From a Flourishing Industry for 2025

In This Article:

Banks worldwide have been continuously undertaking restructuring efforts to focus more on core operations. While these efforts are expected to result in elevated expenses, they will aid growth in the long run. While the uneven economic recovery in developed and emerging nations has been hurting revenue growth for companies within the Zacks Foreign Banks Industry, relatively lower interest rates will provide support.

Despite geopolitical concerns, industry players like HSBC Holdings plc HSBC and UBS Group AG UBS are well-placed to gain from business streamlining efforts and low rates.

About the Industry

The Zacks Foreign Banks Industry consists of overseas banks with operations in the United States. Since a foreign banking organization may have federal and state-chartered offices in the country, the Federal Reserve plays a major role in supervising their U.S. operations. In addition to providing a broad range of products and services to customers in the United States, the banks offer financial services to corporate clients having businesses in the country. The financial firms establish relations with U.S. corporations operating in their home countries. Some units of foreign banks offer a broad range of wholesale and retail services and conduct money-market transactions for their parent organizations. Some industry players are involved in developing only specialized services like wealth/asset management and investment banking.

3 Foreign Bank Industry Themes at Play

Relatively Lower Interest Rates: The central banks globally have started lowering interest rates as inflation numbers gradually cool. This is expected to support foreign banks’ net interest income (NII) and margin, which were under pressure because of rising funding/deposit costs. With rates coming down, coupled with decent economic growth, demand for loans is also expected to improve. Industry players are likely to witness NII expansion. Further, efforts taken by most banks to diversify revenues to become less dependent on spread income are likely to aid non-interest income. Also, lower interest rates will lead to the revival of investment banking business and support wealth/asset management operations. Hence, industry players are likely to record an increase in revenues in the coming quarters.

Restructuring Efforts: Several foreign banks are undertaking business restructuring initiatives. Many banks have been divesting or closing non-core operations to increase focus on core businesses and profitable markets. Through this, industry players are changing their revenue mix and aiming to expand to other lucrative operations. 

Uneven Global Economic Recovery: Following the COVID-19 pandemic, global economic recovery has been uneven. In many regions, economic growth has slowed down but not fully recovered from the pandemic effect, while geopolitical headwinds are hurting the economy in others. Banks’ performances are directly linked to the performance of the overall economy. Weak economic growth in their home markets may hurt foreign banks’ profitability to some extent in the upcoming period.