UK Banks Report Solid H1 2023 Results; Signs of Asset Quality Deterioration and NII Growth Slow Down

DBRS Morningstar has released a commentary discussing large UK banks’ H1 2023 earnings, covering HSBC Holdings plc, Barclays PLC, Lloyds Banking Group plc and NatWest Group plc.

Key points:

• The four large UK banks reported solid results in the first half of 2023, supported by continued strong growth of net interest income (NII).
• The banks reported significantly higher loan loss provisions in H1 2023 compared with H1 2022, reflecting the weak macroeconomic environment but also some increase in non-performing loans (Stage 3 loans).
• We expect further deterioration in asset quality as UK businesses and consumers’ debt affordability will continue to come under pressure in the higher interest rate environment.

“We note that the growth in NII slowed down in H1 2023 compared to the previous half year (H2 2022), reflecting the impact of higher interest rates on the banks’ funding costs,” said Maria Rivas, Senior Vice President, Global FIG at DBRS Morningstar. “We expect deposit betas to accelerate in H2 2023, as banks will increasingly be pressured to pass on the higher interest rates to its depositors.“