Is now the right time to buy European banks?

Luke Graham, News Assistant

European banks have largely reported a weak set of earnings for the fourth quarter so far and banking stocks have tumbled amid concerns over market volatility and the bad loan portfolios of Italian banks.

But some market experts believe the selling is overdone and argue there are pockets of value for the discerning investor.

Earlier this week, shares in the Swiss bank UBS tumbled when its earnings revealed profits in its wealth-management business had slumped by some 40 percent in the last quarter of 2015. Its share price closed 6.83 percent lower on Tuesday.

On Thursday, Credit Suisse posted a pre-tax loss of 2.4 billion Swiss francs for the fourth quarter.

Andy Roberts | Getty Images

Despite this bad patch, this could be the best time to pick up cheap stocks in the banking sector. Some experts, including the CEO of Credit Suisse Tidjane Thiam, have said now is a good time to buy banks.

"Compared to 2008, it's a completely different situation," David Moss, European equities fund manager at BMO Global Asset Management told CNBC. "Whether it's the assets on the balance sheet, whether it's the absolute amount of capital, we are in a far better position than we were."

We need to be discerning on bank stocks: Fund manager

According to Moss, investors need to be discerning when it comes to banking stocks and he agreed that many may have oversold the equities of good banks.

"ING is a great example," he said. "What we saw yesterday when they reported good, strong numbers, good dividend, robust outlook, a lot of granularity on oil and gas, but actually things are going okay and the stock was rewarded with a big bounce in the share price."

But not everyone agrees with this positive outlook for banking stocks. In fact, Marcus Ashworth, chief markets strategist at Haitong Securities, said investors should be "petrified" of the banking sector.

"The reality is the regulators have made this a nightmare for the banks to navigate and at the same time the on-going litigation costs are just incalculable," he told CNBC.

There is more downside on banks: Strategist

Ashworth added that capital buffers the banks are required to build under the Basel III reforms are a potential problem.

"Somewhere, somehow one of these banks is going to hit the buffers and we are going to see a very nasty fallout and I think we are overdue seeing something like that."

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