Barclays maintains a broadly optimistic view on the earnings outlook for UK banks, foreseeing a recovery in net interest margins (NIM) over the coming quarters, with a favourable view on NatWest in particular.
Barclays expects its lending competitor to surpass first-quarter earnings guidance on 26 April and to post an upward revision to its full-year guidance.
“Tailwinds come primarily in the form of stronger structural hedge repricing, rather than loan growth which is likely to be muted with a nascent recovery in mortgages stalling in recent weeks,” said a research team led by Aman Rakkar.
This is likely a result of markets repricing rate expectations higher in recent weeks due to stickier inflationary indicators.
But “while this may reignite some concerns of stagflation, it ultimately further reinforces our expectations of a rebound in earnings momentum - and upgrades”.
Barclays is also overweight on Lloyds stock.
Although analysts expect a sequential decline in net interest income (NII) due to narrowing mortgage margins and rising deposit costs, they expect a “gentle incline” in Lloyds’ NIM in the second half of 2024.
Lloyds Bank is scheduled to report its first-quarter result on 24 April.
Among the other major lenders, Barclays is neutral on HSBC and Standard Chartered and bearish on Metro Bank.
“We expect a short trading update with limited numbers,” said Barclays on the struggling Metro Bank, which recently had to secure a bailout. “Despite the benefits from the financing package, we still see challenges to near-term profitability.”
HSBC is reporting on 30 April and Standard Chartered on 2 May.
Barclays’ price targets are as follows:
- HSBC Holdings PLC (LSE:HSBA): The price target is maintained at 740p.
- Lloyds Banking Group PLC (LSE:LLOY): The price target is set at 70p.
- NatWest Group PLC (LSE:NWG): The price target is 330p.
- Standard Chartered PLC (LSE:STAN): The price target is set at 750p.
- Metro Bank Plc: The price target has been reduced to 30p from a previous target of 35p.