Strategy Note /

10 of the 15 top-performing bank stocks in 2021 were in emerging markets

  • There were some spectacular winners among EM banks this year if you knew where to look

  • Investors rewarded many of the Polish banks, which are well placed for rising inflation

  • Other EM outperformers included Bank Jago, TCS Group, Arion Bank and Allo Bank

10 of the 15 top-performing bank stocks in 2021 were in emerging markets
Rohit Kumar
Rohit Kumar

Global Financials/Thematics

Rahul Shah
Rahul Shah

Head of Corporate & Thematic Research

Tellimer Research
31 December 2021
Published byTellimer Research

It might seem counterintuitive given the sluggish performance of emerging markets overall this year, in comparison with developed markets and the US in particular, but if you knew where to look – hint, not China! – there was plenty of strong performance to be found among the banks.

Indeed, 10 of the 15 top-performing bank stocks in 2021 were in emerging markets.

To generate our list we have looked at US$ total returns for banks with a market cap of over US$2bn.

Top performing banks of 2021

There were great returns to be had from Polish banks

3 of the top 15 are from Poland – Millennium, Bank Pekao and mBank. This is perhaps not a surprise as our research revealed that Polish banks are some of the best placed for rising inflation, as they are the most positively geared to higher interest rates across our sampled markets. Polish inflation is at a 20-year high of 7.8% and the central bank has raised rates three times since October by a combined 165bps. Two members of Poland's MPC – Lukasz Hardt and Eugeniusz Gatnar – have already talked of the need for another 50bps hike in January 2022.

For most emerging markets banks, margins tend to rise when interest rates rise. This is because they tend to have a higher volume of interest rate-sensitive assets (such as variable rate loans) compared with interest rate-sensitive liabilities (such as variable-rate deposits).

We profiled other winners including Bank Jago (Indonesia), Investec (South Africa), TPBank (Vietnam) and Al Rajhi (Saudi Arabia) in our recent report.

Iceland's Arion was hot

Iceland's Arion Bank also makes the list having benefitted from Iceland's strong economic recovery this year. After peaking at 11.6% in January 2021, the unemployment rate more than halved to 5.5% in August, and the country vaccinated quickly in early summer, enabling it to reopen successfully to tourism. The housing market has also been strong, and the combination of rising asset prices and rising incomes has allowed systemwide NPL ratios to fall back to pre-pandemic levels. We've also pointed out the extensive capital return potential from excess capital, asset disposals and high profitability.

And congratulations to holders of Indonesia's Allo Bank, up well over 4,000% in 2021.

Long-term trends are supportive

Looking ahead, rising rates, demographics, digitalisation and improving financial inclusion are all positive trends for emerging market banks in 2022.