UK banks are preparing to announce higher profit targets, buoyed by robust performance and rising interest rates. Major players such as HSBC and NatWest are expected to revise their forecasts positively when they release their annual earnings in the coming weeks.
Uk banks: Optimism Among Major Banks
HSBC (HSBA.L) is anticipated to elevate its return on tangible equity (ROTE) outlook above its current guidance of mid-teens or better. Similarly, NatWest (NWG.L) may increase its 2027 ROTE target from 15 per cent to as much as 17 per cent, according to sources familiar with the matter.
Barclays (BARC.L), which previously forecasted an ROTE of 12 per cent or more for 2026, is also expected to raise its targets, with analysts suggesting that both Barclays and HSBC could enhance their projections by as much as 200 basis points during their upcoming announcements. These results are set to be revealed on February 10 and February 25, respectively.
Factors Contributing to Strong Performance
Peter Rothwell, head of banking at KPMG UK, highlighted that UK banks have experienced earnings resilience that has exceeded initial expectations. This is largely attributed to higher interest rates, strong credit quality, and diligent cost management.
However, the sustainability of this strong performance is under scrutiny. Analysts have noted that political pressures may influence banks to support the government’s growth agenda, which could lead to changes in their lending practices. Gary Greenwood, an analyst at Shore Capital, pointed out that while the current government has avoided imposing further taxes on major banks, there is an expectation that these institutions will grow their loan books more rapidly and contribute more significantly to the economy. This could potentially result in lower pricing on loans.
Potential Adjustments by Other Banks
Lloyds Banking Group (LLOY.L) is also likely to adjust its targets this year, with ambitions to raise its ROTE to as much as 18.5 per cent by 2028, compared to its current goal of over 15 per cent. Analysts at Jefferies have indicated optimism regarding Lloyds’ performance.
Market Reactions and Comparisons
On Monday, shares of British banks saw a positive uptick, with Lloyds rising by 1.3 per cent, while HSBC and NatWest both increased by 0.5 per cent, and Barclays saw a rise of 0.4 per cent. This growth occurred despite a slight 0.1 per cent decrease in the broader FTSE 100 index.
In contrast, banks across continental Europe have also been revising their profit forecasts upward, signalling confidence that higher margins will persist. European banking stocks have risen significantly, more than doubling since early 2024 and increasing by 60 per cent in the past year, far outpacing their US counterparts.
European Banks Set to Lift Targets
Spanish banks such as Santander (SAN.MC) and BBVA (BBVA.MC) have successfully grown their income while maintaining control over costs, leading to improved profit expectations. Analysts at JPMorgan predict that BBVA will achieve around 20 per cent ROTE in 2025, with profitability expected to rise further in subsequent years.
Santander’s target for ROTE by 2028 is anticipated to be between 19 and 20 per cent, up from 16.1 per cent as of September. Meanwhile, Deutsche Bank (DBKGn.DE) set a new ROTE target of over 13 per cent for 2028, a rise from its previous target of 10 per cent for 2025.
Investment Banking and Market Trends
Analysts are optimistic that volatile markets and increased corporate activity will boost investment bank earnings, benefitting institutions like Deutsche Bank, Barclays, and UBS (UBSG.S). This follows a trend of rising revenues and positive outlooks reported by most Wall Street banks.
However, some European banks, including France’s Societe Generale (SOGN.PA), BNP Paribas (BNPP.PA), and Credit Agricole (CAGR.PA), may face challenges due to higher operational costs and increased domestic competition. Analysts expect these factors to weigh on their profits in the coming quarters.
Looking Ahead
As UK banks prepare to announce their earnings, market participants will closely monitor how these institutions adjust their profit targets and respond to external pressures. The outcomes could significantly influence investor sentiment and shape the banking landscape in the UK and beyond.
