Lloyds Banking Group PLC (LON:LLOY) is the preferred UK bank share for analysts at Barclays Capital after the recent round of first-quarter results.
Putting loyalty admirably aside, the analysts hailed Lloyds’ solid capital, well-discounted asset quality risks and the best prospects post-Covid19.
READ: Lloyds, RBS and Barclays price targets cut as analysts see 'huge subjectivity' on loss provisions
The Barclays analysts left their share price target unchanged for Lloyds at 50p but cut their targets on HSBC PLC (LON:HSBA) to 410p from 420p and for Standard Chartered PLC (LON:STAN) to 410p from 425p. Both were kept on 'underweight' ratings.
Royal Bank of Scotland PLC (LON:RBS) was the only bank to be given a higher target price, upped to 135p from 130p but kept at 'equal weight'.
“Uncertainty over the ultimate size of losses remains elevated,” the analysts said in the note to clients, factoring in further provision charges for the rest of the year and next year.
The provisions for potential loan losses amounted to were estimated to range from 40-110 basis points of coverage on Stage 1+2 loans, Barclays said, of which there’s circa 200-600bp on unsecured consumer loans and circa 30-70bp on corporate loans.
Uncertainty over the ultimate size of losses is still "elevated", with the number crunchers now factoring in further provision charges of 90bp this year and 60bp in 2021.
Addressing the issue of whether capital levels could become a problem, the analysts said CET1 ratios will “fall but remain above MDA”, the maximum distributable amount of earnings that regulators would allow for future dividends.
Alongside likely future loan losses, the analysts said bank’s CET1 capital ratios will face headwinds from risk-weighted asset cyclicality and loan growth but corporate emergency liquidity drawdowns “are unlikely to repeat”.
“We see scope for Q2 CET1 ratios to dip below company target levels, but capital is resilient given circa 300-750bp headroom to MDA.”