More than £40bn has been wiped off the value of the UK’s biggest banks since the start of the year in a blow to millions of investors and pension savers.
While all eyes have been on the rout in the mining sector, banking stocks have been hammered over the last five weeks.
Lloyds – the most widely held stock in the country with around 2.7m retail investors – has slumped by around 15 per cent.
HSBC has lost a similar amount of value in percentage terms but RBS is down 20 per cent and Barclays has dropped 21 per cent, according to research compiled by stockbroker Panmure Gordon.
Asia-focused bank Standard Chartered has also been hit, shedding a fifth of its value.
The huge losses in the banking sector will affect virtually everyone in the country who has money tied up in the stock market, including pension savers.
Banks are also an important source of dividends for income- seeking investors.
While RBS has frozen pay-outs since the crisis and Lloyds has only recently resumed its divi, HSBC has consistently dished out one of the most generous dividends to employees.
UK banks paid out £10.8bn in dividends last year – or £12 in every £100 paid out by UK Plc, according to latest figures from consultancy firm Capita.
Experts said banks have been hit by wider fears about the global economy, with global giants HSBC and Standard Chartered most directly exposed to problems in China and emerging markets.
But they have struggled to pin-point why shares have fallen so sharply compared with most other blue chip companies in the stock market.
The FTSE 100 index of Britain’s biggest firms has fallen by just 3 per cent since the start of the year amid concerns over the slowdown in China and the fall in oil and commodity prices.
Laith Khalaf, senior analyst at pensions and investment giant Hargreaves Lansdown, said: ‘Anyone who holds any kind of stockmarket fund – from those with a stocks and shares ISA to pensions savers – will be affected by falling bank shares.’
He added: ‘I’m struggling to make a great deal of sense of why bank shares have fallen so sharply.
‘Concerns about economic growth have certainly played a part. The sell-off could also be due to concerns that interest rate rises might be delayed – banks make more money when rates are higher.’
One analyst suggested that investors are anxious about the prospect of the UK leaving the EU, with a referendum potentially taking place as early as June. Pro-Europe campaigners have warned that Brexit could be hugely damaging to the UK’s financial services sector.
Gary Greenwood from Shore Capital said: ‘Many investors are starting to get nervous about the potential impact of Brexit. There are fears that sterling could fall and interest rates could rise sharply – resulting in more people defaulting on their home loan.
‘This could cause bad debts for banks to spiral.’
The turbulence on the stock markets is also a setback for British taxpayers. The Chancellor has put its plans to sell £2bn of Lloyds shares to the public in the spring on hold.
Experts fear it could be some time before markets calm down enough for George Osborne to complete the re-privatisation of Britain’s biggest bank and get taxpayers’ money back.
Selling shares at their current price of just over 62p would result in a huge loss for taxpayers.
The slump in RBS’s share price has also delayed the Government’s plans to whittle down its remaining 73 per cent stake.