The UK’s largest banks are set to report another round of bumper profits this week amid the furore over savings rates and growing concern about the health of the UK economy.
Lloyds, Natwest and Barclays are expected to report another strong set of figures for the second quarter thanks to the impact of rising interest rates. Rising rates boosts banks’ net interest margin (NIM), the difference between what they pay out and receive in interest payments.
Lloyds kick off earnings season on Wednesday, with Barclays following on Thursday and Natwest on Friday. Standard Chartered also report results on Friday.
Analysts at UBS were bullish, arguing the results would demonstrate “better net interest income, no real bad asset formation and good capital generation”.
According to analyst consensus, Lloyds will make nearly £1.7bn in the three months to June, down from £2bn last year.
Lloyds’ NIM is expected to have contracted slightly from last quarter as the bank will have paid out more to customers in interest payments. Looking forward analysts at Bloomberg Intelligence said “NIM comments will be critical for sentiment as pressure to reprice deposits is growing”.
Barclays meanwhile is predicted to rake in £1.9bn, up from £1.5bn last year while profit at Natwest is expected to rise to £1.5bn from £1.4bn last year.
While the return of higher interest rates has seen banks generate some of their highest profits in years, it has also attracted political attention.
Politicians and regulators have been pouring pressure onto banks to pass on higher savings rates to customers. Last week the big four banks offered easy access savings rates between 0.9 and 1.75 per cent while the Bank of England’s base rate stands at five per cent.
The Financial Conduct Authority warned banks that they must inform savers if better deals are available once the new Consumer Duty comes into force at the end of this month.
The impact of rising interest rates will also put pressure on borrowers, forcing banks to set aside higher loss provisions to cope with bad loans.
Analysts expect Lloyds to set aside £371m in the quarter, up from £243 the quarter before.
Natwest meanwhile is expected to put aside £264m, up from £70m last quarter while Barclays will set aside around £600m, up from £524m.
Despite the increase, Edward Allenby, economist at Oxford Economics, argued that banks were well positioned to weather the storm.
“We expect UK banks to face some challenges over 2023 and 2024, primarily from the quality of their loan books, but we think the sector is entering this period of slow-burn stress from a relatively good position,” he said.