Citi analysts have offered a mixed forecast for UK banks in 2025, favouring HSBC Holdings PLC (LSE:HSBA) and NatWest Group PLC (LSE:NWG) while expressing caution over Lloyds Banking Group PLC (LSE:LLOY).
HSBC is a top pick, with anticipated strong 2025 guidance supported by its Asia-focused strategy, cost-cutting, and robust capital returns.
NatWest is also seen positively, with resilience in retail and commercial banking. However, Citi flags potential pressure on net interest income (NII) if the Bank of England cuts rates further.
Lloyds, Citi's least preferred UK lender, is weighed down by its reliance on domestic markets and vulnerability to macroeconomic headwinds, including rate cuts and housing market risks.
While Citi sees attractive capital returns and low valuations across European banks, it maintains a market-weight stance for the sector.
Downside risks to earnings per share (EPS), coupled with geopolitical uncertainty, temper the American bank's enthusiasm for the sector.
In afternoon trading HSBC and NatWest were up 1.3% and 0.9% respectively, while Lloyds was up 4.5%, buoyed by positive legal developments in the motor finance test case.