The World’s Best Banks 2022: As Covid Recedes, Banks Get A Boost From Higher Rates But Inflation Could Spoil The Party

This should improve banks ability to earn net interest margin, the lifeblood of most banks from an earnings standpoint and could be mimicked in other large economies at a time when inflation is causing damage to global economies and other central banks look to take similar action.

Mike Mayo, managing director and head of U.S. large-cap bank research at Wells Fargo Securities, says that 2021 was a strong year for large investment banks that could aggressively take advantage of a bull market and tailwinds of a soaring stock market.

However, Mayo says 2022, with its troubled markets, will produce headwinds for those financial titans and serve as a “passing of the baton in the banking industry” to Main Street banks that will thrive amidst the pandemic recovery that brings along more volumes of deposit and loans along with the aforementioned rising interest rates.

As the world emerges from two difficult pandemic years, the U.S. the economy has improved dramatically at a breakneck pace. Gross Domestic Product grew at 5.7% in 2021. However, the pandemic has left behind supply chain challenges and outsize inflation that keeps hitting new highs, the latest being a 8.5% measurement for March, the highest since 1981.

Despite runaway inflation, economists think inflation will soon recede. Swiss banking giant UBS is predicting that inflation for the rest of 2022 will drop to as low as 3.4% by December.

“The US economy is coming online faster and stronger than other parts of the world,” Mayo says. “As a result we will likely see a pickup in Main Street banking in terms of companies increasing their buildup of inventory and their capital expenditures and consumers drawing down their excess savings to spend and travel.”

Bank stocks have had an underwhelming run in early 2022. While there have been marketwide struggles, the S&P 500 is down nearly 6.7% year to date, financial stocks have suffered even greater losses with the iShares U.S. Regional Bank ETF down 9.18% year to date. This comes on the heels of a strong year for bank stocks, with that same iShares ETF up 38.9% last year, outpacing the S&P 500 at 26.89% in 2021.

“We are facing challenges at every turn: a pandemic, unprecedented government actions, a strong recovery after a sharp and deep global recession, a highly polarized U.S. election, mounting inflation, a war in Ukraine and dramatic economic sanctions against Russia,” said Jamie Dimon, CEO of the largest bank in the U.S. JPMorgan Chase JPM , in his annual letter to investors.

Looking forward, Dimon said he does not envy the Fed because it is likely to have to raise rates significantly higher than expected. While Dimon struck an optimistic tone that “if the Fed gets it just right, we can have years of growth, and inflation will eventually start to recede,” he conceded that the road to those greener pastures will be paved with consternation and volatility.

“The Fed should not worry about volatile markets unless they affect the actual economy. A strong economy trumps market volatility,” he added.

Outside the U.S., the economic recovery from the pandemic has not been as rapid, particularly in the world’s second largest economy, China, where a policy of “zero Covid” and less effective vaccinations than Western nations has led to a seemingly unending pandemic and shutdowns as recently as this month in Shanghai.

In the midst of global turmoil and a naggingly persistent pandemic, Forbes’ fourth annual list of the World’s Best Banks, which is published in partnership with market research firm Statista, surveys more than 45,000 customers in 27 countries to determine its ranking. Survey participants were asked their opinions on both their current and former banking relationships, defined as all financial institutions that offer a checking and/or savings account.

Click here for the Forbes list of World’s Best Banks.

Banks were rated on overall recommendation and satisfaction which were weighted the most as well as five other subdimensions: trust; terms and conditions; digital services; customer services; and financial advice.

The results yielded between 5 and 75 banks per country with a minimum score of 70 out of 100 and selected depending on the score achieved, the number of evaluations collected, the number of active banks in the specific country as well as the respective population in the country and number of banks with enough evaluations.

The U.S. has the largest number of awarded banks at 75, followed by Japan with 45 and Germany with 35 while 7 countries had the lowest number of 5. There were 27 countries with awarded banks.

The top five banks from the U.S. were Lincoln, Nebraska based Union Bank & Trust, Fargo, North Dakota-based Gate City Bank, Georgia-based United Community Bank UCBI , USAA, a lender open to members of the U.S. military and their families, making the cut as well as Boston-based Eastern Bank Corporation, a sign of the strength of regional banking with all but USAA having less than 2500 employees.

In Japan, SBI Sumishin Net Bank, an internet bank founded in 2007 by SBI Holdings and Sumitomo Mitsui Trust Bank, which was also listed, took the top spot showing the strength of upstart banks leading into the fintech space.

The top German bank was Sparda-Bank Hessen, a subsidiary of a series of cooperative banks known as Sparda-Banken that has a small employee count of 254 and was founded in 1897.

Jason Bisnoff

I’m a wealth management staff writer at Forbes based in New York. Prior to joining Forbes, I was on the same beat for Private Asset Management. I also