Forget Europe – In this country, banks make huge profits

OP Pohjola’s head of allocation is concerned about the valuation levels of the developing stock markets, which are lower than the western markets Jani Stenius attention.

Developing markets are considered riskier than western markets, but on the other hand, in developing countries, the other side of the horizontal cup, i.e. the potential for returns, is also greater. According to Stenius, differences in valuation open up opportunities.

“When thinking about Brazil and Latin America more broadly, the growth opportunities for banks come to mind. Compared to Europe, they are significantly better. There are many levers from which returns can be sought.”

Nordic senior strategy Dear Alava is on the same lines. For example, a mortgage is a fairly new product in many markets, so there is room for growth in banks’ margins.

“That has been a really big driver. Banks’ margins in developing markets are something completely different from what we see here in the Nordic countries. They make really good results with basic banking,” says Alava.

A similar development in the banking sector can also be observed in some other developing markets. For example, retail banking in India is still in its early stages, but is growing all the time.

Banks in developing countries may have a lower valuation, but of course higher risk and potential for growth, such as new customers, digitalization and margin development. In European banks, growth is slower and more stable, but the valuation is generally higher.

Stenius emphasizes that budding digitization is a significant source of growth for banks in developing markets. It can open up new customer segments.

“Not everyone has a bank account and banking services yet,” he points out.

With the applications of digital devices, for example, Brazilians can increasingly access banking services.

“In a way, banks also have room to grow through that.”