Lloyds Banking is the best of the bunch among UK banks if the UK does enter a full-blown recession, says JP Morgan, but risks for the sector are significant.
On the plus side, arrears are well below the previous cycle, with the banking sector resilient from a capital perspective and the upside from higher net interest income helping the banks absorb losses from any credit cycle.
In a base case assessment (3% base rates by end 2023), the banks stay profitable but without any compelling reason to buy the shares, said the US bank.
“Given the tail-risks and externality of shocks, we maintain our selective view with no UK banks within our team top picks portfolio and Lloyds and StanChart as relative OWs (overweights) in the UK.”
Shares in Lloyds rose 1.1% to 42.71o.