UBS has restated its 'buy' advice to prospective investors in Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG), saying the UK lenders offer the best revenue growth prospects in Europe - but at a cheaper price.
It notes the sector is trading at just seven times forecast 2026 earnings, with Paragon Banking Group PLC (LSE:PAG) the preferred mid-cap pick.
UBS analysts said the backdrop for UK lenders was “pretty stable,” even though attention and flows have recently shifted to eurozone banks off the back of higher government spending in Germany and Scandinavia.
The investment bank said deposit trends were holding steady, despite the usual March rush as savers move money into ISAs. It added that credit growth was healthy, bad loan risks were stable, and the outlook for UK GDP was “real” growth of 1.1% this year.
Deposit rates continued to ease in February, slipping to 2.27%, and the share of fixed-term deposits and ISAs inched up slightly.
UBS said it still expected a competitive savings market, but banks were offsetting tighter mortgage margins with better returns from interest rate hedging and balance sheet expansion.
The Swiss investment bank's valuation metrics suggest these banks are delivering 14.6% returns on tangible equity in 2026 - a strong showing versus peers - while trading at a discount to the sector.
The biggest risk, the analysts noted, was a potential rise in sovereign bond yields, particularly if US Treasuries weaken.
Close Brothers and Lloyds remain rated 'neutral'.