This year has been an excellent one for shareholders of NatWest (LSE: NWG), the UK banking giant. NatWest shares have soared 82% so far in 2024.

On top of that they offer a 4.4% yield at today’s price. This means that, if an investor had bought the stock at the start of the year before that 82% price increase, their dividend yield would currently be close to 8%.

Yet despite a storming 2024, the share still looks cheap on some measurements.

For example, the price-to-earnings ratio is less than 8.

Meanwhile, the price-to-book ratio (a common valuation technique for banks) is also well below 1, suggesting the shares could still offer good value.

So, what is going on – and could the stock really offer investors good value even now?

Great year for banks

NatWest has had a superb year on the stock market. But it is not alone among banking peers in that regard.

Two of the other strongest performers in the FTSE 100 this year have been Barclays (up 70% so far this year) and London-based emerging markets-focused bank Standard Chartered (49% higher now than at the start of the year).

So, while NatWest has been the cream of the crop when it comes to share price increase, clearly the City has taken a shine to banking shares this year.

That reflects a stronger sense as the year has gone on that the global economy is in fair shape and could stay that way, or get better. That typically means less risk of loan defaults, which is good for bank profits.

I’m not convinced banks will have a great 2025

But while that has been the sentiment, how accurately does it reflect what we have seen in this geopolitically volatile year, let alone what might happen in 2025 and beyond?

Looking at NatWest as an example, I am not convinced its company performance this year has been stellar.

So far we know how it did in the first nine months. Total income fell 3%. Operating expenses inched upwards. Profit from continuing operations was 0.3% lower than in the prior year period.

The company’s post-tax profit in the period grew – but that largely reflects lower tax charges than in the prior year period.

I do not think that is a bad performance. But it is fairly unremarkable in my view. It suggests that the company is already struggling to find growth drivers in a sluggish economy. If the economy worsens in 2025, defaults could rise and profits fall. I see that as a sizeable risk for banks including NatWest.

The valuation doesn’t look expensive – for now

Still, while pre-tax profits from continuing operations more or less stagnated in the first nine months, they still came in at £1.2bn. That is not to be sneezed at.

With a strong brand, large customer base and proven business model, the current valuation for the shares does not look overblown to me – as long as the economy does not get markedly worse.

I see the economy as a risk though. If it bites badly into earnings, today’s valuation could come to look much less attractive.

So, for now, I have no plans to buy any NatWest shares for my portfolio.