UK banks in the spotlight amid hopes mortgage rates are nearing peak

Barclays, Lloyds Banking Group and NatWest Group are due to update shareholders on their third-quarter earnings and outlook for the year.

Anna Wise
Friday 20 October 2023 13:29 BST
The profits of Britain’s biggest high-street banks and how their customers are holding up against the cost-of-living squeeze will be in the spotlight again (Victoria Jones/PA)
The profits of Britain’s biggest high-street banks and how their customers are holding up against the cost-of-living squeeze will be in the spotlight again (Victoria Jones/PA)

The profits of Britain’s biggest high street banks and how their customers are holding up against the cost-of-living squeeze will be in the spotlight again when the lenders unveil their latest financial results.

Barclays, Lloyds Banking Group and NatWest Group are due to update shareholders on their third-quarter earnings and outlook for the year.

Investors will be watching the high street lenders closely for signs that customers are being squeezed by higher interest rates, which have pushed up borrowing costs throughout the year.

An important metric in their financial results will be expected credit losses or impairments, which show how much cash banks are setting aside to cover “bad debts” when customers fall behind on loan repayments.

It comes as UK interest rates have risen from 0.1% to 5.25% in less than two years.

At the moment, consumers and businesses are proving to be very resilient in the face of increasing pressure. But realistically, how long can that continue to last?

Peter Rothwell, KPMG's UK head of banking

Barclays could set aside around £570 million according to an analysis consensus compiled for the bank, significantly more than the £380 million in credit impairment charges this time last year.

The global banking giant is expected to report a pre-tax profit of £1.8 billion, down from the £2 billion reported a year ago.

Peter Rothwell, the UK head of banking for KPMG, said the lag between interest rates going up and borrowers feeling the pain of higher costs could mean the large banks are beginning to see the true impact on their customers.

He told the PA news agency: “At the moment, consumers and businesses are proving to be very resilient in the face of increasing pressure.

“But realistically, how long can that continue to last?”

Mr Rothwell said investors will keep a close eye on the lenders’ outlook, asking: “Are they still confident, or are they seeing some sort of decay of credit quality?

“In my view, we need a bit of stability and certainty in the forward view for interest rates.”

Lloyds Banking Group, which is the UK’s biggest mortgage lender, said in July that more mortgage borrowers have struggled with higher repayments, with arrears increasing slightly.

Mortgage pressure is set to weigh on earnings in the latest quarter, but it could mark a period of “peak pain” for UK banks as the biggest challenges begin to fade, according to analysts at Barclays.

Lloyds is expected to report a pre-tax profit of £1.8 billion, up from £1.5 billion this time last year, according to a consensus of analysts.

And it is predicted to reveal an impairment charge of around £662 million, similar to last year’s levels.

Analysts will also be paying attention to the net interest margin, which shows the difference between what a bank earns from loans and pays out for deposits.

Margins could slow as banks pay out more on customer deposits in a bid to reward savers.

Meanwhile, NatWest Group, which also owns Royal Bank of Scotland, Ulster Bank and Coutts, is predicted to report an operating pre-tax profit of £1.4 billion for the third quarter, up from £1.1 billion a year ago, according to analysts.

It comes as the British bank is undergoing an independent review into customer account closures by Coutts, which came under fire earlier this year for moving to shut down the account of former Ukip leader Nigel Farage.

The debacle with NatWest, which has appointed law firm Travers Smith to conduct the probe, culminated in the shock resignations of its chief executive Dame Alison Rose and Coutts’ boss Peter Flavel.

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