UK banks in for a tough quarter, analyst warns

Lloyds, Natwest and Barclays in for a ‘tough quarter’ as pressure on interest income persists

CITY AM SAYS The outlook for the remainder of 2023 looks fairly bleak for the UK’s domestically focused banks as the tailwind from rising interest rates fades.

Barclays, Lloyds and Natwest will all report results for the third quarter this week with question marks over banks’ net interest margin (NIM), a measure of the difference between what banks pay out and receive in interest payments.

In results for the second quarter both Natwest and Barclays UK lowered their forecast for the full-year NIM on the back of an increasingly competitive deposit and mortgage market. While upgrading its own forecasts, Lloyds’ NIM dropped compared to the first quarter.

The banks reported that depositors had sought out better deals on their savings, bumping up banks’ funding costs, while the higher cost of borrowing had depressed the lending market. Analysts expect little to change going into the third quarter.

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