Lloyds, HSBC, Barclays and NatWest set to report lower earnings this year as interest rate drop looms

Higher borrowing costs from the Bank of England have pushed lenders’ net interest income to record highs last year.

However their margins have narrowed into 2024 amid intense competition for mortgages and deposits, and the expectation that rate-setters will make multiple cuts this year.

Investors will be closely watching the banks’ net interest margins, which show the difference between what they generate from loans and what they pay out for deposits.

Lloyds, Barclays and NatWest will be updating shareholders from Wednesday, and the following week will see HSBC and Santander’s results on the Tuesday.

The Standard Chartered’s will report their earnings on the Thursday.

Lloyds and HSBC were among the lenders to report record-high annual profits for 2023.

For the first three months of the year Lloyds is expected to report a profit of £1.7billion.

This is a fall from the £2.3billion the bank reported this time last year.

The fall in earnings is largely based shifts in customer behaviour, including more people locking away their cash into savings accounts with higher returns.

To monitor the banks’ net interest margins, investors will have to be keeping an eye on a possible rise in customers falling into arrears on their loan repayments in the latest period, or any other signs of consumers struggling.

For Lloyds, the net interest margin is expected to have edged lower since last year from 3.22 per cent to 2.93 per cent.

Matt Britzman, an equity analyst at Hargreaves Lansdown, said: “While the drop is expected and owes a great deal to being compared to the particularly strong environment this time last year, when rates were being hiked, anything lower than 2.90 per cent would likely be punished.”

NatWest is set to report an operating pre-tax profit of £1.2billion, down from the £1.8billion quarterly profit it reported last year.“

Britzman continued: "NatWest was one of the first to see a big shift from consumers into longer-term savings accounts, which was a surprise toward the end of last year

“Trends here seem to have stabilised, but it’s certainly something to keep an eye on as those longer-term accounts are less profitable for banks.”

Barclays is set to report a pre-tax profit of £2.2billion for the first quarter, down from £2.6billion reported last year.

It provided some good news for shareholders in February when it said it was aiming to save about £1billion by making the bank more efficient this year, and targeting about £2billion worth of savings in total by 2026.

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Analysts at S&P Global Ratings project that UK banks’ domestic credit losses will inch higher to £4.4billion this year, mostly driven by unsecured lending.

They also forecast a modest 2.1 per cent rebound in lending this year, driven by higher mortgage market activity and signs of improving business sentiment.

Peter Rothwell, head of banking at KPMG UK said: “Potential delays to rate cuts should continue to support net interest income.

"Although it will be interesting to see the extent to which higher rates and the continued cost of living challenges are impacting credit quality, which has proven robust thus far.”