UK Banks Q1: Solid Thanks to Higher Revenues; But Inflation and Cost of Living Pressure Likely to Increase
DBRS Morningstar has released a commentary discussing large UK banks’ Q1 2022 earnings, covering HSBC Holdings plc, Barclays PLC, Lloyds Banking Group plc and NatWest Group plc.Key highlights:
• The banks generally reported solid net results in Q1 2022 thanks to higher core revenues which include higher net interest income driven by higher interest rates and sustained mortgage activity in the UK.
• At the same time, the Russian invasion of Ukraine, lockdowns in Asia, and concerns over the Chinese property market have affected HSBC through higher impairments and lower revenues in Asia, while Barclays' net profits were affected by one-off conduct costs.
• The banks reported solid return on tangible equity, above 10%, with the exception of HSBC (6.8%).
“The large UK banks generally reported a solid Q1 thanks to core revenue growth, including higher net interest income. Nevertheless, DBRS Morningstar considers that inflation and cost of living pressures in the UK are likely to affect revenues and asset quality in coming quarters. Regulatory changes and share buybacks have driven CET1 ratios down, however, DBRS Morningstar expects the large UK banks to continue to generate satisfactory earnings and to adjust their capital cushions according to economic and geopolitical developments” said Vitaline Yeterian, Senior Vice President, Global Financial Institutions, DBRS Morningstar.
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 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 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.
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