Lloyds Banking Group PLC (LON:LLOY) is still the best value of the UK banks but further progress for the sector overall hinges on post Covid-19 expectations, suggest Barclays.
Analysts at the bank have posed three questions for each of UK banks post-Covid-19 based on interest rate sensitivity; asset quality and earnings recovery.
On these three issues, Lloyds (share price target 46p) comes out best, suggests Barclays.
The questions it poses fo the Lloyds bosses are: Can net interest margins and operating income move up again; will there be any provision write-backs and if so potential capital hand-outs and will its tax rate rise after the Budget given that 15-20% of the business is non-banking.
Seemingly answering its own questions, Barclays has an ‘overweight’ rating on Lloyds, with a new CEO also possibly instigating strategic action to boost returns.
Elsewhere, Natwest Group (LON:NWG) is rated as 'neutral' (target 180p) with a trade-off between subdued earnings/returns and attractive medium-term capital return prospects.
HSBC PLC (LON:HSBA) is rated as 'underweight' (440p) as Barclays sees a challenging outlook near term for revenues and a rich valuation on ten times 2023 earnings.
Among the challenger banks, Virgin Money PLC (LON:VMUK 170p target) and One Savings Bank PLC (LON:OSB 500p) are rated ‘overweight’ while Metro Bank PLC (LONN:MTRO 130p) is ‘underweight’.