It’s clear from the chart below — from Citibank’s economics team — that negative interest rates policies have been detrimental to banking stocks.
The chart is pretty self explanatory.
“Countries with negative rates” are the average bank stock price in the Euro area and Japan since the beginning of the year while “countries without negative rates” are the average stock price of banks operating in the US, UK, Canada and Australia.
Those banks operating in negative interest rate jurisdictions are now valued at around 75% of what they were at the start of 2016. In comparison, the value of those banks operating in countries without negative interest rates are largely unchanged.
As economists at Citi note, while negative policy rates have lowered bond yields and funding costs, they have also come with some negative side-effects, most notably on bank profitability due to downward pressure on net interest margins.
Though currency movements and other factors may have played a role in the divergence, there’s little doubt that central bank policy has also been central to the fortunes of banking stocks this year.
One only has to look at the split between the two groups in late January — when the BOJ stunned markets when it introduced negative interest rates — for proof.
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