UK banks are expected to profit from the rise in inflation and interest rates coupled with low growth, according to analysts.
Robert Noble, an analyst at Deutsche Bank, said in an analyst note on Monday that the outlook was “consistent with a normalisation of cost of risk against a much lower risk banking system”.
The bank has recommended investors to buy shares in Lloyds Banking Group PLC (LSE:LLOY) as it expects the British bank will boost its guidance and offer a “high capital return”.
Lloyds traded at GBX 45.23 this afternoon, relatively flat on its closing price on Friday.
“We expect substantial rate driven revenue growth at even the more bearish end of estimates for deposit betas and mortgage spreads,” Noble said, adding: “At 5.4x 2024 P/E and 10% average yield, UK bank valuations are particularly compelling.”
The European research arm of Deutsche Bank also recommended buying Virgin Money UK PLC (LSE:VMUK) shares, moving its target from 245p to 230p.
“Our preference is for Lloyds and Natwest where we expect guidance upgrades and high capital return. Despite Standard Chartered's recent outperformance it still remains one of the cheapest UK banks and we retain our Buy recommendation and preference over HSBC," Noble added.