Lloyds Banking Group PLC (LSE:LLOY) rating was unchanged by RBC whilst its analyst team lifted its sights for NatWest Group – with the price target moving to 360p from 355p.
NatWest, which this week was paid to make an acquisition, is benefiting from a better-than-expected net income environment, according to RBC, which pointed to the UK banking sector seeing ‘some growth in deposits’ and a ‘further slowdown in migration to interest-bearing accounts’.
At the same time, RBC analyst Benjamin Toms noted that “competition has not been that aggressive” over deposit pricing in the sector.
Giving a broader sector commentary, Toms added: “Mortgage margin compression will continue to fade as guided by management.
“In our view, higher mortgage volumes are unlikely to come through until Q3'24, and then fade a bit into Q4'24 due to the increase in average swap rates in Q2.
“Growth in consumer and mortgage lending should be better than corporate lending, where we expect more muted progress.
“We expect asset quality to continue to be very benign and thus we improve our cost of risk expectations for NatWest and Lloyds.”
Though the analyst added that he expected that quarter-over-quarter movements in swap rates would be a headwind to both of the UK high street banks.
Specifically for NatWest, RBC has increased its financial year 2024 profit before tax forecast by £142 million, equating to 3%, due to expectations for lower impairments and better net interest income, offset partially by lower levels of ‘other income’.
Nonetheless, despite the upgraded forecast and target price, RBC retains a neutral ‘sector perform’ rating for NatWest.
For Lloyds, meanwhile, RBC has an ‘outperform’ rating and a 60p price target.