UK Banks’ Q1 2023 Results Boosted by NII Growth, But Pressure on NIM Expected

DBRS Morningstar has released a commentary discussing large UK banks’ Q1 2023 earnings, covering HSBC Holdings plc, Barclays PLC, Lloyds Banking Group plc and NatWest Group plc.

Key highlights:

• The four large UK banks showed significant improvement in profitability in Q1 2023 boosted by strong growth in net interest income reflecting the rising interest rates.

• Higher revenues continued to offset the higher, albeit lower than during the pandemic, levels of loan loss provisions and higher operating costs largely driven by inflation.

• Asset quality for the UK banks remained resilient in Q1 with no major signs of deterioration despite the challenging economic conditions in the UK, and the banks’ capital and liquidity positions remained sound.

“For the remainder of 2023 we expect UK banks to further benefit from the consecutive rises in interest rates but the benefit to be less pronounced in coming quarters as the cost of deposits will increase to reflect the pass through of interest rates rises, new lending volumes slowdown and intense mortgage competition,” notes Maria Rivas, Senior Vice President, Global FIG at DBRS Morningstar. “We also consider that the key uncertainty for next quarters remains the impact of higher interest rates, inflation and elevated cost of living on asset quality and cost of risk, which would also depend on economic developments.”