Lloyds Banking Group PLC (LON:LLOY) is facing pressure to strengthen its capital buffers, which could impact its potential for growth in dividend payments, according to Goldman Sachs.
Goldman cut its target price on Lloyds by 4% to 53p and repeated a ‘sell’ rating on the stock, noting that investors seem “increasingly focused on whether the group will be permitted to continue operating in line with its current target capital level”.
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Lloyds is targeting a common tier equity 1 (CET1) ratio of 13% but many analysts expect the lender to raise this after the Bank of England raised concerns about Brexit in its stress tests last week.
The BoE said while it had judged UK banks as being able to support the real economy through any financial shocks resulting from a no-deal Brexit scenario, “a severe global recession and stressed misconduct costs could result in more severe conditions than in the stress test”.
“In such circumstances, capital buffers would need to be drawn down substantially more than in the stress test and, as a result, banks would be more likely to restrict lending to the real economy," it said.
The BoE plans to raise the countercyclical capital buffer (CCB) rate to 1% from 0.5% with effect from November 2018. It will consider raising the CCB rate again in the first half of next year.