UK banks have had their fair share of in-flight turbulence, but analysts still see them heading for a stable landing.
According to UBS, domestic lenders have largely closed the gap with their European peers in terms of valuation, and the outlook remains constructive despite some short-term headwinds.
It points to stronger earnings growth potential and attractive valuations, especially for Barclays PLC (LSE:BARC) and NatWest Group PLC (LSE:NWG).
Barclays, rated “buy” with a raised target of 415p (up from 365p), stands out for its undervalued share price, robust earnings, and opportunities in corporate activity and investment banking.
NatWest, also a “buy,” had its target lifted to 553p (from 540p), thanks to premium returns on equity and healthy cash generation, even as product margins soften.
Among the international names, Standard Chartered receives a notable upgrade, with UBS raising its price target by around 20% to 1,446p (from 1,215p), reflecting expectations for stronger performance in wealth management, sales and trading, and the benefits of ongoing cost cuts and share buybacks.
Lloyds Banking Group PLC (LSE:LLOY) and HSBC Holdings PLC (LSE:HSBA) are both rated “neutral,” with targets nudged up to 75p (from 74p) and 935p (from 870p) respectively.
For the sector as a whole, UBS expects the European banking industry to re-rate upwards over the next 12 to 18 months, narrowing the gap to historic averages.
While some product margins and mortgage volumes have softened in the second quarter, rate hedges and supportive conditions in corporate and investment banking are expected to help offset this, particularly at NatWest and Barclays.
HSBC and Standard Chartered face pressure from lower Hong Kong interest rates, but UBS sees offsetting gains from currency movements and other business lines, with Standard Chartered looking especially well-placed to outperform.
In UBS’s view, UK bank valuations remain attractive, offering potential for further upside as the sector continues to recover and investor confidence improves.