UK banks to benefit even as rates fall - Barclays
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UK BANKS TO BENEFIT EVEN AS RATES FALL - BARCLAYS
Bets have been mounting on speedier rate cuts by the Bank of England after November's softer-than-expected CPI figures, a factor that would typically translate into a negative for banks' net interest income (NII).
But Barclays analysts still see this sector as a beneficiary of falling rate expectations, though they are trimming estimates for UK banks' EPS 1%-5% to reflect this backdrop.
"While rate cuts mean that 2024E is likely to be a transitional year for earnings, we continue to expect UK banks to strongly grow NII, earnings and book value in 2025, driven by a best-in-class structural hedge tailwind," they write in a note.
Along with the shifting rates story, UK macro tail-risk is reducing, asset quality concerns are receding and activity is improving, Barclays says. An eventual political catalyst is also on the cards given a likely change in UK government this year.
They are overweight Natwest NWG.L, which is their first pick, and also overweight on Lloyds LLOY.L.
Overall the UK bank sector is showing some green shoots. Balances are looking stable and deposit migration is slowing down. Meanwhile, mortgage activity is recovering, according to Barclays.
(Lucy Raitano)
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