More than half, or 58 per cent, of banks are located in countries facing potential governance shifts, according to new research by MSCI. Of those, 17 per cent, or nearly one in five, are at risk of being targeted by shareholders due to weaknesses in board efficacy, lower than average return on equity (ROE) and few limitations to potential shareholder activism.
MSCI's analysis flagged 20 banks which are most likely to be targeted by new, engaged and activist investors with broader rights and governance mandates.
Many Japanese banks were said to be at high risk, including UFJ, the largest bank in Japan, and Sumitomo Mitsui Fin.
Other banks at risk include: Mizuho, HDFC, Sumitomo Mitsui Trust, Resona, Bank of East Asia, Shizuoka, Chiba, Shinsei, Indiabulls, Fukuoka, China Developement, Hachijuni, Hiroshima, Chugoku, Bank of Kyoto, Yamaguchi, Santander and BBVA.
These banks also face potentially significant headwinds to meet investor demands.
Santander was flagged as a medium risk, but it held the unique position as the only bank also at risk of changing populist policies.
Notably, Santander makes an appearance on our list, and while the bank may face more moderate governance shifts, it is the only bank of the set we found to be both a likely target of governance reform and heavily exposed to populism simultaneously.
MSCI said Lloyds and Santander could be hit by interest rate rises as they stand out with significant loans to economically sensitive borrowers.
"An increase to interest rates that spurs a 30 per cent default rate to their most vulnerable retail book could wipe out tangible book value of both companies," MSCI said.