The firm considers the UK banking sector is experiencing a deterioration in credit quality as economies slow worldwide.
It says banks that depend on the UK market with high ratios of loans to deposits are in a weaker position than those with more global exposure.
It says global players, such as HSBC, have been able to avoid the full impact of the credit crunch through their exposure to the Asian markets. But it believes that this shelter may not last as Asian economies are reliant on the US as an export market.
Alliance Trust global financials analyst Tim Gibbens says despite UK banks raising more than £20bn of capital over the last year, further moves to shore up balance sheets cannot be ruled out.
He says: “The key areas to monitor now are the strength of banks’ capital and liquidity positions as well as their exposure to commercial property and specialist mortgage markets where prices may weaken further.”
Gibbens adds that when conditions eventually stabilise, banking stocks are likely to see a sharp but short-lived bounce. He says: “Tough fundamentals such as a relative lack of growth options, pressure on margins from increased competition and still stretched capital positions will soon reassert themselves.”