The financial prospects of Lloyds Banking Group PLC (LON:LLOY) (LLOY.L) may seem to be relatively downbeat at the moment. After all, the bank faces a challenging UK economy, with GDP growth forecasts having been downgraded recently by the IMF. And with almost all of its income being generated in the UK, this could cause operational and financial challenges for the business in the near term in my view.
Longer term, though, I feel that the bank could generate improving financial performance. I believe that it has a sound strategy which could lead to a rising bottom line.
One key area could be the continued focus on efficiency. So far, Lloyds has been able to cut costs so that it is one of the most efficient banks in the FTSE 100. Its decision to continue to pull back on branch services and instead target investment in its digital operations may lead to not only reduced costs, but also improving customer satisfaction rates. Many bank account holders are using their mobile apps to a greater extent, while visiting branches less often.
Indeed, this trend looks set to continue in my opinion. The increasing acceptance of AI (artificial intelligence) in our lives means that digital opportunities for banks could increase, and this could be a key growth area of the business as it deploys £3 billion towards it over the medium term.
Alongside its digital growth opportunities, I think that the Lloyds share price could benefit from its improving financial standing. It has sought to strengthen its balance sheet in recent years, and seems to have made progress in this regard to my mind.
Therefore, trading on a P/E ratio of around 8, I feel that the stock could have investment appeal for the long term. It may struggle to generate impressive EPS growth in the short term, but in the long run its profitability could improve.