The UK’s economic secretary to the Treasury has said that shares at British banks are undervalued in part because of lingering concerns around Brexit.

In an interview with Reuters, Bim Afolami said that shares are impacted by an ongoing perception that banks are still hindered by the UK’s exit from the EU and a negative political climate towards Britain's financial institutions.

His comments come after Bank of England governor Andrew Bailey described the valuation of UK banks as a “puzzle”.

“This period of time has been the first big test of the post Global Financial Crisis banking reforms, and the system in this country has come through effectively,” he said during a lecture at Loughborough University on Monday. “But, there is a puzzle expressed often by banks. If it is a good news story, why are the valuations of banks so much in the doldrums?”

Afolami also said that banks in the UK are facing a “hangover” from the uncertainty of Brexit.

"There are just some international investors that automatically took a discount to British banks because of Brexit, which I could understand when there was a real period of uncertainty in 2016, but I think it's way unnecessary and overdue now," Afolami told Reuters. "I think they're making a mistake in that."

He said that players in the market may also not have fully digested changes in Britain's banking industry since the global financial crisis, adding that NatWest is now a much stronger bank than its predecessor Royal Bank of Scotland.

The finance minister continued: "So what I say to the market is, work out before other people do that these banks are undervalued because, you know, Britain is a great place to be in banking. We're making the right reforms, You've got a government that is really keen on listening to the views of the financial sector."

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