Analysts at Barclays Capital remain bullish on Lloyds Banking Group PLC (LON:LLOY) and challenger lender Virgin Money PLC (LON:VM.) in a sector review, concluding that mortgage pressures for the UK banks are easing.
In a note to clients, the analysts pointed out: “Mortgage pricing has been a recurrent market concern for UK bank profitability and one that has come back into focus as margins continue to come under pressure and banks increasingly target UK mortgages as a growth area.”
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“However,” they added,“mortgage capital requirements are changing and we expect pricing to remain rational so expect limited spread erosion from here.”
The analysts pointed out that while the volume outlook is subdued, credit quality is also relatively benign, so modest mortgage repricing and subdued growth should support the sector’s earnings outlook.
They reiterated an ‘overweight’ rating on both Lloyds, with a 77p price target, and Virgin Money, with a 360p price target.
In morning trading, Virgin Money shares were trading at 280.2p, down 1.8% or 5.10p, while Lloyds shares were down 0.7%, or 0.48p at 67.12p.