Royal Bank of Scotland Group PLC (LON:RBS) has been upgraded to a ‘buy’ by Goldman Sachs, which reckons it is well positioned to weather the increasingly competitive UK mortgage market.
Analysts at the heavyweight US investment bank claim mortgage pricing is “showing no signs of improvement”, and they expect prices to remain under pressure whilst UK lenders fight it out as they look to add to their market shares.
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“In our view, RBS is comparatively less impacted by tougher mortgage competition as: (i) it has a much smaller mortgage book (less than half of Lloyds’); (ii) within that, it has a much smaller back book (c.12% vs. 38%); and (iii) its growth ambition means it should likely offset some of the impact of lower rates by volume growth (we forecast mortgages to grow 15% by end 2020),” read a note to clients.
Goldman added: “Finally, (iv) having a large non-interest-bearing deposit book results in RBS having a comparatively low overall funding costs. This, in our view, is a key strategic advantage in a more competitive mortgage market.”
Alongside its new ‘buy’ recommendation (from ‘neutral’), the bank hiked its target price for the stock by 5% to 345p.
But Goldman kept its sell ‘rating’ on Lloyds Banking Group PLC (LON:LLOY), which it reckons, with its large mortgage book, is the most exposed of all to the “impact of intense competition”.
RBS shares were down 0.3% to 245p on Wednesday morning, whilst Lloyds was down 0.7% to 58.8p.