Report
Charlotte Cervin ...
  • Elisabeth Rudman
  • Maria Rivas Escrigas
  • Vitaline Yeterian

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.
Underlyings
Barclays PLC

Barclays is a holding company. Through its subsidiaries, Co. is a financial services provider engaged in retail banking, credit cards, wholesale banking, investment banking, wealth management and investment management services. Co.'s business segments are: Barclays U.K, which provides everyday products and services to retail customers and small to medium sized enterprises; Barclays International, which delivers products and services designed for Co.'s corporate, wholesale and international banking clients; and Head Office, which comprises head office and central support functions (including treasury) and businesses in transition.

HSBC Holdings Plc

HSBC Holdings is a financial services holding company. Through its subsidiaries, Co. operates four businesses: Retail Banking and Wealth Management, which serves customers through four businesses: Retail Banking, Wealth Management, Asset Management, and Insurance; Commercial Banking, which provides working capital, term loans, payment services, and international trade facilitation; Global Banking and Markets, which delivers a range of transaction banking, financing, advisory, capital markets, and risk management services; and Global Private Banking, which provides a range of private banking services. At Dec 31 2017, Co. had total assets of US$2.52 trillion and deposits of US$69.92 trillion.

Lloyds Banking Group plc

Lloyds Banking Group is a financial services provider. Co.'s main business activities are retail and commercial banking, general insurance and long-term savings. Co.'s Lending products are mortgages, credit cards, personal and business loans; Deposit products include taking Current accounts and savings accounts; Insurance products are home insurance, motor insurance and protection; Commercial financing products includes term lending, debt capital markets and private equity; and Risk management products includes interest rate hedging, currency and liquidity. As of Dec 31 2017, Co. had total assets of £812.1 million and total deposits of £448.0 million.

Lloyds Banking Group PLC CEDEAR

Provider
DBRS Morningstar
DBRS Morningstar

DBRS Morningstar is a global credit ratings business with 700 employees in eight offices globally. DBRS and Morningstar Credit Ratings are committed to empowering investor success, serving the market through leading-edge technology and raising the bar for the industry.

Together, we are the world’s fourth largest credit ratings agency and a market leader in Canada, the U.S. and Europe in multiple asset classes. We rate more than 2,600 issuers and 54,000 securities worldwide and are driven to bring more clarity, diversity and responsiveness to the ratings process. Our approach and size provide the agility to respond to customers’ needs, while being large enough to provide the necessary expertise and resources. For more details visit us at dbrs.com.

Analysts
Charlotte Cervin

Elisabeth Rudman

Maria Rivas Escrigas

Vitaline Yeterian

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