Britain’s largest banks are poised to unveil lower profits for the beginning of the year, despite the Bank of England’s interest rates hitting their highest level in over a decade.
Lloyds, Barclays, and NatWest are gearing up to update shareholders on their first-quarter financial results over the next few days. Higher borrowing costs last year boosted lenders’ net interest income to unprecedented levels. However, margins have since contracted in 2024 due to fierce competition for mortgages and deposits, compounded by expectations of multiple rate cuts this year.
Investors are keenly eyeing the banks’ net interest margins, indicating the variance between earnings from loans and payments for deposits. Lloyds, Barclays, and NatWest are scheduled to present updates this week, followed by HSBC and Santander the following week, with Standard Chartered reporting earnings in between.
While Lloyds and HSBC reported record annual profits in 2023, Lloyds is projected to announce a first-quarter profit of £1.7 billion, down from £2.3 billion last year. This decline is primarily attributed to shifting customer behaviours, such as an increased preference for savings accounts offering higher returns.
Analysts anticipate Lloyds’ net interest margin to decrease from 3.22% to 2.93% compared to last year. Matt Britzman, an equity analyst at Hargreaves Lansdown, cautioned that any drop below 2.90% could adversely affect the bank’s performance.
NatWest is expected to report an operating pre-tax profit of £1.2 billion, down from £1.8 billion last year. Britzman highlighted the significant shift towards longer-term savings accounts observed towards the end of last year.
Barclays anticipates a pre-tax profit of £2.2 billion for the first quarter, down from £2.6 billion last year. However, the bank has outlined plans to enhance efficiency, aiming to save £1 billion this year and a total of £2 billion by 2026.
Analysts at S&P Global Ratings project a slight increase in UK banks’ domestic credit losses to £4.4 billion this year, mainly driven by unsecured lending. They also forecast a modest 2.1% rebound in lending, fueled by heightened mortgage market activity and improving business sentiment.
Peter Rothwell, head of banking at KPMG UK, noted that potential delays in rate cuts should sustain net interest income. However, he underscored the importance of monitoring credit quality amid continued challenges posed by higher rates and the cost of living.
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