Ahead of the start of the UK bank reporting season, analysts at Citi said their top pick in the sector is NatWest Group PLC (LSE:NWG) and their least preferred is Lloyds Banking Group PLC (LSE:LLOY).
Heading into the final results for 2024, which start with Barclays on Thursday and NatWest this Friday, the analysts said the UK economic outlook "looks far from rosy, with fears of stagflation growing".
However, UK domestic banks are likely to be the only banks that will be able to grow their key net interest margins (NIM) in 2025, they added, which should drive "superior" growth in earnings per share compared to overseas rivals.
For 2025, the Citi team said they see "greatest upside to consensus" - ie their forecasts are higher than other analysts - at Natwest.
HSBC Holdings PLC (LSE:HSBA) is the top pick over Standard Chartered PLC (LSE:STAN) in the Asia-focused lenders, as higher for longer Fed rates and Asian wealth growth "remain supportive too".
Four of out of the big five UK banks are expected by Citi to beat fourth-quatrter consensus expectations, with Lloyds the exception.
The analysts also expect Natwest and HSBC to also provide upbeat 2026/27 targets.
Citi has an 'overweight' rating on the UK bank sector with its preference ranking order: Natwest (Buy) > HSBC (Buy) > Barclays (Buy) > StanChart (Neutral) > Lloyds (Neutral).
HSBC and Natwest are also among the US bank's top-picks across all European banks.