By David Henry

NEW YORK, (Reuters) – The pandemic saw the global banking sector grow in capital and show stability. However, its return on equity plummeted and investors have moved to more promising growth sectors. According to a recent study.

The pressures of 2020 were not felt by banks, but capital reserves have risen in the past year. McKinsey, a consulting firm, stated that the success came with a price in Wednesday’s annual banking review.

The North American banks’ return on equity fell from 12 to 8 in 2019, to 8% in 2020, and was halved by European banks at 3% to 6%.

According to the report, “The industry has become more safe, predictable, and more commoditized.”

Banks are now valued by investors as utilities. The report stated that banks are valued at around 1.0 times their book value, while 3.0 times is for all industries. A decade ago, the discount was about 1.0x compared to 2.0x.

This disparity is even though the stock market value of the industry increased by 20% between October 2000 and the beginning of the pandemic.

McKinsey stated that it reflects an outlook for banking that is “decently resilient and attractive, but not appealing”.

Based on how cash is added to balance sheets, changes in interest rate, government economic assistance, and other factors, the return on equity might increase by 6% to 7% or 12%.

According to consultants, banks that focus on businesses that make fees, require less capital and are more efficient will perform better than others.