After Lloyds kicked off UK bank reporting season with upgraded guidance and results that largely met expectations, it bodes well for the rest of the sector's fourth-quarter updates, though valuations are already elevated.
UBS analyst Jason Napier noted that while UK bank shares outperformed in 2025, they "remain attractive", but investor focus has shifted.
“We’re mostly holding banks for EPS growth rather than a large re-rating,” he wrote in a note to clients earlier in the week.
With names like NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC) enjoying tailwinds to net income from their interest rate hedge and trading at slightly cheaper discounted P/Es than Lloyds, Napier said delivery on earnings and capital returns was key.
Lloyds’ upgraded 2026 return on tangible equity (RoTE) target for at least 16% was already in line with consensus, echoing a broader concern: whether in-line results and targets are enough after a strong run in bank stocks.
Napier flagged NatWest as his top UK pick, but says pricing discipline will be scrutinised given expectations of 18-19% RoTE.
For internationally focused lenders, HSBC Holdings PLC (LSE:HSBA) and Standard Chartered PLC (LSE:STAN) face a higher bar after recent rallies, he said.
StanChart is UBS’s preferred name, with upside from wealth growth and exposure to recovering Asian markets, while Shawbrook Group PLC (LSE:SHAW) is the top mid-cap pick.