The Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) share price has fallen by 12% in the last six months. During the same time period the FTSE 100 is down by around half that amount.
One possible reason for the poor performance of the bank’s shares could be the uncertainty surrounding the UK due to Brexit. The IMF recently downgraded the outlook for the UK economy. With there being no deal between the UK and EU as yet, the prospects for a number of UK-focused shares could be uncertain in the near term in my opinion.
Although I feel that the long-term potential for the UK economy remains strong, in the near term the changes being made in both a political and economic sense could cause a degree of instability. Since Lloyds generates almost all of its income from within the UK, I wouldn’t be surprised if its financial performance is affected to at least some degree over the coming months.
Beyond that, though, the stock seems to have a sound strategy in my view. The banking industry is changing at a rapid pace. While branches have been a popular method for customers to interact with their bank in the past, mobile apps are becoming the most in-demand means of managing an account. And with technology set to improve, this trend could continue.
Lloyds is therefore investing up to £3 billion in its digital growth prospects. The increasing use of AI and technology could lead to reduced costs and an improving customer experience, as well as a lower cost to income ratio. It may also help to strengthen the company’s position in what is a competitive industry following the emergence of a number of challenger banks since the financial crisis.
Therefore, while further share price declines could be ahead due to Brexit, I’m still optimistic about the company’s long-term investment prospects.