A surge in mortgage lending helped by low interest rates and low unemployment in Britain has sent British banking stocks to record peaks over the past month.
In recent weeks, the sector's leading companies such as Royal Bank of Scotland, Barclays and Lloyds TSB Group have issued bullish trading statements amid strong results from their main consumer lending businesses.
Much of this buoyant picture is already reflected in rising share prices.
The FTSE banking sector has risen 10 per cent since mid January, hitting a record 10,609.80. Through the past 12 months, the sector has outperformed European banking stocks as a whole by about 6 per cent and the broader British market by nearly 20 per cent.
But investors say they are prepared to wait for shares to go higher. Jupiter Asset Management director Mr Tony Nutt noted banks had benefited from recent falls in the oil and telecom sectors, previous darlings of the market.
"The market's not interested in buying telecoms or oils. They're more interested in buying banks," said Mr Nutt.
Fund managers also felt that British banking stocks looked better than their continental European counterparts, as most British banks had little exposure to investment banking, which has been hit hard by a global economic downturn and slack advisory business.