Deutsche Bank has downgraded OSB Group PLC (LSE:OSB) to 'hold' from 'buy', saying much of the upside has already been realised and warning that rising deposit costs pose a growing risk.
The bank nudged its price target up slightly, to 660p from 650p, but said the shares’ recent outperformance left less room for error.
The change came alongside a sweep of price target upgrades across the sector, reflecting lower interest rate assumptions and a still-supportive operating backdrop.
Barclays PLC (LSE:BARC) remains Deutsche’s preferred large-cap name, with its target lifted to 570p from 480p and a 'buy' rating retained. Close Brothers Group PLC (LSE:CBG) also stays at 'buy', with its target raised to 570p from 550p.
Asia-focused HSBC Holdings PLC (LSE:HSBA) and Standard Chartered PLC (LSE:STAN) are both kept at 'hold', with targets increased to 1,200p and 1,900p, respectively.
Lloyds Banking Group PLC (LSE:LLOY) and NatWest Group PLC (LSE:NWG) remain 'buys', with targets lifted to 110p and 730p.
Analyst Robert Noble said he still expects a “positive but harder” year for UK banks.
Revenue growth, earnings and dividends remain among the strongest in the FTSE, but valuations are no longer as cheap and the good news is better understood by the market.
Specialist lender to come back into favour
Interest rate moves continue to have uneven effects. Larger domestic banks are expected to benefit more in 2026, helped by stronger revenue growth and capital generation.
Deutsche forecasts around 17% growth in tangible net asset value plus dividends for the big UK lenders next year.
Specialist lenders, by contrast, face pressure in the near term from higher deposit costs as Bank of England liquidity is withdrawn.
Deutsche expects them to come back into favour in 2027, once deposit repricing has worked through and faster balance sheet growth starts to show through.
Even so, that recovery is “a year away”, prompting the downgrade of OneSavings Bank for now.
"We expect specialist lenders earnings growth will accelerate past the large banks in 2027 and at the current discounted valuations it is best, in our view, to buy into them now."
The analysts' preference is Paragon Banking Group PLC (LSE:PAG) and Shawbrook Group PLC (LSE:SHAW).