As the Big Four banks of Britain gear up to unveil their annual results, analysts are projecting "strong" outcomes, while also flagging potential long-term hurdles.
Barclays and Natwest are set to pave the way with their reports coming out on Thursday and Friday, respectively, as reported by .
These announcements will precede the results from Lloyds on February 20 and HSBC on February 21.
The surging FTSE350 Bank Index, which stands at its peak since 2008 after a robust growth of over 50 per cent in the past year, supports expectations for the forthcoming batch of financial revelations to solidify the banking sector's sturdy performance, stimulated by heightened interest rates.
Russ Mould, investment director at AJ Bell, conveyed to City AM: "Banks’ shares are no longer as cheap as they were after a storming run, so the prospects for further capital appreciation may be a bit more limited."
Nonetheless, he noted that the major financial institutions are predicted to readily meet their regulatory capital stipulations "with ease."
"That should mean they can continue to be excellent sources of income for investors who seek it," Mould further elaborated. If these banks can dodge any regulatory complications, Mould mentioned that "increasingly generous dividend and run buybacks" are likely to persist.
Despite broadly optimistic sentiments, Mould emphasized caution, stressing "that is not to say the banks can be complacent."
"There is still plenty of competition from challenger banks and fintech upstarts and the investment banking operations (of those who have them) still pale next to those of their US rivals."
This was the view expressed by Eric Cloutier, Global Head of Banking Regulations at Forvis Mazars, in a conversation with City AM. He suggested that "The message for 2025 is likely to be one of cautious confidence – adapting to challenges while balancing long-term competitiveness with stability."
Cloutier further noted that banks are "expected to address the challenges of a rapidly changing economic and geopolitical environment".
He added, "We also expect banks to continue focusing on the key themes of digital investment, strengthening operational resilience, and ensuring capital flexibility to sustain profitability in the current uncertain environment."
As Chancellor Rachel Reeves encourages the Financial Conduct Authority (FCA) to promote competitiveness while ensuring consumer protection in her growth strategy, analysts believe any deregulation could "bode well" for lenders. Mould commented: "It will be interesting to see if the Governments’ call for less exacting levels of regulations cuts the big lenders any slack."
Lloyd Harris, Head of Fixed Income at Premier Miton, told City AM he anticipates a "fairly clean set of results" with any deregulation leading to "pretty good outlooks" for lenders.
"The market should respond well to what is a stable and improving outlook," he concluded.
Miton has highlighted a "good deposit market position" as a potential advantage for the Big Four banks, noting that they dominate a market which is "not particularly competitive". He also pointed out that it had been a "good year" for investment banking divisions, as evidenced by Barclay’s third quarter report which showed a six per cent year-on-year growth in its investment bank.
Miton further suggested that "We could continue to see net interest margin expansion," adding, "This is what sets the º£½ÇÊÓƵ apart from its European peers."
Meanwhile, Filippo Alloatti, Head of Financials at Federated Hermes, told City AM that he anticipates an "upbeat message" on net interest margins, despite a "gloomy macro-outlook". As the ongoing motor finance scandal continues to unfold, Alloatti mentioned that Lloyds "will be closely watched for an update."
However, he does not foresee "any fresh provision pencilled-in, especially after the Chancellor’s ‘intervention’". Alloatti also urged Natwest to revise its guidance and outlook, describing the current stance as "seemingly rather conservative."
