At Walter Scott, we have long shied away from the sector, wary of its inherent leverage, opaque balance sheets, economic sensitivity, and penchant for periodic bouts of self-harm. And whilst it’s true that the wider sector appears considerably more robust than it was back in 2008, we see no reason to alter that long-term view. Even in the near term, whilst the move away from the era of ultra-low interest rates has benefited the sector’s net interest margins – a key indicator of profitability that measures the difference between the interest paid by a bank and the interest it receives – a more challenging economic backdrop may well usher in a period of rising corporate and consumer defaults. For now, we continue to identify myriad opportunities across a diverse range of sectors that offer superior growth prospects to the banking industry over the long term. In this article, first published in 2019 and updated in 2021, Walter Scott Executive Director Roy Leckie discusses in further detail why banks have been noticeable by their absence from our portfolios. The views and opinions expressed remain as relevant today as they were on publication.