Positive Outlook for UK Banks#
Citi has expressed optimism about UK domestic banks, highlighting that they are experiencing some of the highest growth in net interest income (NII) in Europe this year. However, the first quarter of 2026 may present challenges due to a decline in NII expected during this period.
Expected Earnings Declines#
In the upcoming earnings reports, banks are anticipated to show a quarter-on-quarter decrease in net interest income. This is attributed to fewer days in the quarter and ongoing pressure on mortgage margins. Barclays is projected to see a 2% decline, while Lloyds is expected to drop by 1%. NatWest's NII is forecasted to remain stable.
Future Growth Projections#
Despite the anticipated challenges in Q1 2026, growth in net interest income is expected to resume in the second quarter as pressures ease. For the full year, Citi predicts NII growth of 7% for Barclays, 8% for Lloyds, and 13% for NatWest.
Earnings Forecasts Ahead of Results#
As the banks prepare to release their first-quarter results between April 28 and May 5, Citigroup expects NatWest's adjusted profit before tax to exceed consensus estimates by 7%. Barclays and HSBC are also projected to surpass expectations by 6% and 3%, respectively. For instance, Barclays is forecasted to report an adjusted profit before tax of £3 billion, driven by a slight revenue increase and lower impairment costs.
HSBC is expected to show an underlying profit before tax of $10.3 billion, reflecting a 19% increase from the previous quarter. Meanwhile, Lloyds is anticipated to report an adjusted profit of £1.9 billion, slightly below consensus, while NatWest is expected to achieve £2.1 billion, benefiting from reduced provisions.
Trends in Domestic Banking#
Citi notes that trends in domestic banking indicate a slowdown in mortgage growth, currently at 3.5% and expected to decline to around 2%. However, corporate lending is growing at about 8.2% year-on-year, and credit card balances are increasing by approximately 8.5%. Deposit growth is also steady at around 3.5% year-on-year, with asset quality remaining strong.