UK Banks: 3Q19 Profits Impacted by PPI and Higher Cost of Risk

This commentary focuses on the 3Q19 results of the major UK banking groups: Barclays PLC (Barclays), HSBC Holdings plc (HSBC), Lloyds Banking Group plc (Lloyds) and The Royal Bank of Scotland Group plc (RBS) (collectively “the UK banks” or “Banks”).

Key Highlights include:

• The UK banks’ aggregate statutory pre-tax profit in 3Q19 was GBP 4.2 billion, down 54% YoY.
• 3Q19 saw a major increase in PPI provisions.
• The underlying 3Q19 pre-tax profit declined by 9% to GBP 8.7 billion, reflecting economic uncertainty, which adds to other profitability headwinds.
• DBRS Morningstar expects the operating environment for UK banks to remain challenging in the near to medium term.

“Significant economic uncertainty in some of UK banks’ key markets and a slowdown in global economic growth is likely to continue to exert pressure on revenues and the cost of risk. Other revenue headwinds include fierce competition in the domestic mortgage lending market and low interest rates. On the positive side, the substantial negative impact of PPI on UK banks’ statutory earnings is likely to come to an end in 2019. In the difficult operating environment, DBRS Morningstar views positively banks’ additional measures to maintain strong cost discipline, which should mitigate some of the pressure on profitability from the external environment.” said Tomasz Walkowicz, Vice President.

This commentary “UK Banks’ 3Q19 Profits Impacted by PPI and Higher Cost of Risk” is available at www.dbrs.com.