NatWest Group PLC (LSE:NWG) and Barclays PLC (LSE:BARC) have tricky balancing acts when they release their third-quarter results next week.
Brokers expect the numbers to be good with the endowment effect of lending rates rising faster than savings giving margins a boost.
Bad debts, too, are yet to be a real problem, but with the mortgage market in chaos following the missteps of the ex-PM, lenders unveiling huge profits would not sit well politically.
Stories are already emerging that a windfall tax is being lined up by the cash-strapped Tory administration and that going forward the effective tax rate on UK banks’ profits will be 33%.
“With the mortgage rates now at or above 6%, mortgage affordability and its implications on the broader economy have become a key concern, especially given the fast-churning nature of the UK mortgage market,” Goldman Sachs (NYSE:GS) wrote this week.
The US bank sees NatWest as the biggest beneficiary of the recent rise in interest rates.
Barclays has the biggest investment bank but also has a £160bn mortgage loan book and an £8.8bn credit card book.
Danni Hewson at AJ Bell notes that, going forward, the banks will have to make provisions if they think a loan is going sour rather than afterwards as in the past.
How that plays out will be something to watch for, Hewson adds.
Consensus forecasts are for Barclays to report profits of £1.8bn for the third quarter, against £2bn a year ago, with nine-month pre-tax to be £5.5bn compared to £6.9bn last year.