UK Banks 9M: Solid Results Reflect Strong NII Growth; But Negative Outlook Impact Provisions

DBRS Morningstar has released a commentary discussing large UK banks’ 9M 2022 earnings, covering HSBC Holdings plc, Barclays PLC, Lloyds Banking Group plc and NatWest Group plc.

Key highlights:

• Overall, the large UK banks reported solid results in 9M 2022 with higher interest rates supporting earnings. The return on average tangible equity was above 10% in 9M 2022 although not as strong as in 9M 2021 (13%).

• Loan loss provisions were higher than expected reflecting the weakening macroeconomic outlook in the UK and globally. Asset quality metrics for the UK banks remained sound with a Stage 3 loan ratio of 1.8% on average at end-September 2022 in line with end-FY21. Nonetheless, a deterioration in asset quality is likely to emerge in coming quarters.

• The banks' average CET1 ratio was strong at 14.1% at end-September 2022, stable from end-June 2022, with an average capital buffer of 390 bps above the minimum regulatory requirements.

“Looking into Q4, DBRS Morningstar expects the large UK banks’ profitability to remain supported by higher net interest income, while asset quality is likely to weaken given a more adverse environment,” said Vitaline Yeterian, Senior Vice President, Global FIG at DBRS Morningstar.