As Britain’s Big Four banks prepare to post annual results, analysts expect “strong” performances, but warned of long-term challenges.
Barclays and Natwest will lead the first round of results this week, with the pair reporting on Thursday and Friday respectively. This will be followed by Lloyds on February 20 and HSBC on February 21.
The FTSE350 Bank Index currently sits at its highest level since 2008 and has grown over 50 per cent in the last year.
Analysts expect the upcoming raft of results to consolidate strong industry performances, boosted by high interest rates.
Russ Mould, investment director at AJ Bell, told City AM: “Banks’ shares are no longer as cheap as they were after a storming run, so the prospects for further capital appreciation may be a bit more limited.”
However, he said the big lenders were all set to meet their regulatory capital requirements “with ease”.
“That should mean they can continue to be excellent sources of income for investors who seek it,” Mould added.
If the lenders steer clear from regulatory troubles, he said “increasingly generous dividend and run buybacks” could continue to be paid out.
‘Balancing long-term competitiveness with stability’
Despite generally positive expectations, Mould cautioned “that is not to say the banks can be complacent”.
“There is still plenty of competition from challenger banks and fintech upstarts and the investment banking operations (of those who have them) still pale next to those of their US rivals.”
Global head of banking regulations at Forvis Mazars, Eric Cloutier, told City AM: “The message for 2025 is likely to be one of cautious confidence – adapting to challenges while balancing long-term competitiveness with stability.”
Cloutier said banks are “expected to address the challenges of a rapidly changing economic and geopoltical environment”.
“We also expect banks to continue focusing on the key themes of digital investment, strengthening operational resilience, and ensuring capital flexibility to sustain profitability in the current uncertain environment.”
Deregulation ‘bodes well’ for lenders
As Chancellor Rachel Reeves nudges the Financial Conduct Authority (FCA) towards fostering competitiveness whilst balancing consumer protection in her bid for growth, analysts said any deregulation can “bode well” for lenders.
Mould said: “It will be interesting to see if the Governments’ call for less exacting levels of regulations cuts the big lenders any slack.”
Lloyd Harris, head of fixed income at Premier Miton, told City AM he expects a “fairly clean set of results” with any deregulation triggering “pretty good outlooks” for lenders.
“The market should respond well to what is a stable and improving outlook,” he added.
Miton said a “good deposit market position” would help the Big Four, with banks dominating a market which is “not particularly competitive”.
He added it had been a “good year” for investment banking arms, as shown in Barclay’s third quarter report after its investment back grew six per cent year-on-year.
“We could continue to see net interest margin expansion,” Miton added.
“This is what sets the UK apart from its European peers.”
Head of financials at Federated Hermes Filippo Alloatti told City AM he predicted an “upbeat message” on net interest margins, despite the backdrop of a “gloomy macro-outlook”.
As the ongoing motor finance scandal looms, Alloatti said Lloyds “will be closely watched for an update”.
However, he does not expect “any fresh provision pencilled-in, especially after the Chancellor’s ‘intervention’”.
He also called on Natwest to upgrade guidance and outlook with the current “seemingly rather conservative”.