UK's top five banks brace for £16bn profit test amid economic uncertainty
FTSE 100 banks £16bn payday to face economic reality check
UK banks will give a snapshot of the gathering tensions in the economy next week as the nation's top lenders update the City on their first quarter financial results
Barclays will kick off results season on Tuesday. It will be followed by Lloyds a day later, Standard Chartered on Thursday and then Natwest, which rounds off the week on Friday. Europe's biggest lender HSBC will follow up with its update the week after, on 5 May.
The pre-tax profit haul at the FTSE 100's Big Five banks is expected to be just shy of £16bn.
If achieved, this will pull marginally ahead of the £15.2bn secured in the first three months of 2025. Though it will undershoot the near £17bn from 2024 and £18bn in 2023, bounty which was boosted by high interest rates.
Beyond the headline numbers, attention in the City will focus on recent market volatility and how it is shaping the wider outlook for 2026. The interest rate path is expected to look more favourable than it did just three months ago, following the US and Israel's war with Iran sending inflationary ripples through the global economy.
"Net interest income is expected to hold up well, thanks to an almost total halt in interest rate cuts around the world," Russ Mould, investment director at AJ Bell, told City AM.
Banks go for 2022 deja vu
But some of the enthusiasm for an interest rate-driven revenue bump is expected to be offset by higher provisioning for loan losses amid the economic uncertainty.
"Higher impairment charges could limit profit growth," Mould said.
In the first quarter of 2022, HSBC recorded an impairment charge of $642m (£476m), which led to profit for the period shrinking 25 per cent to $3.4bn. Equally, Lloyds profit was dragged down to £1.6bn, from £1.9bn in 2021, after a £117m was set aside to help buffer against bad loans.
This provisioning came following Russia's invasion of Ukraine that led to a seven per cent rise in inflation.
"It would be no surprise to see [banks] cite geopolitical uncertainty and the absence of expected central bank interest rate cuts if loan impairment rates do go up," Mould added.
Analysts are pencilling loan provisions to come in at £2.6bn across the quintet. That would mark the highest first-quarter charge since the beginning of 2020, where the world was dealing with the global shock of the Covid-19 pandemic.
