Profits are expected to fall at most of the UK’s major banks as they could potentially start writing off bad loans.
All of the UK’s Big Five are due to release their first-quarter results next week, and analysts expect all but HSBC to lose ground.
Russ Mold, Investment Director at AJ Bell, said: “The big US banks have, at least to some extent, set the tone for the Big Five of the FTSE 100 companies by re-accommodating loan loss provisions (instead of the 2020 provisions to be dissolved in 2021). , increased investment in digital services and lower investment banking revenues weigh on earnings, but higher interest rates offer the prospect of higher net interest margins and interest income going forward.”
If a similar trend in loan writedowns is felt here, banks’ reported earnings could be badly hit.
Irish Banks 2021 results previously reported showed that Bank of Ireland made a profit of 1.05 billion euros for 2021 while AIB’s was 645 million euros.
In both cases, those numbers were boosted by so-called write-backs, an accounting exercise that increased the valuation of loans previously written off in anticipation of potential Covid-related losses and booked the difference as profit.
Lloyds Banking Group is expected to report pre-tax profit of just under £1.43bn (€1.7bn) for the first three months of the year, down by a quarter from the same period last year is equivalent to.
Analysts who follow NatWest are forecasting a 20 per cent decline to £755m (€900m), Barclays watchers expect profit to fall 45 per cent to £1.32bn (€1.57bn), while Standard Chartered will forecast a profit of £802m (€953m). 27pc less than last year.
However, HSBC will see its pre-tax profit jump from £2.48bn (€2.95bn) to £2.85bn (€3.39bn) if the experts are right.
At Barclays, part of the decline will likely come from provisions the bank is taking on loans it believes are at risk of default.
Loan loss provisions are expected to be £299m (€355m) in the first quarter compared to just £55m (€65m) a year earlier.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “In the last update, consumers started spending more on credit as the world recovered from lockdowns.
“As inflation rises, more and more people are turning to borrowing to pay their bills, but this could lead to an increase in bad debts if inflation is not temporary.
“For this reason, the forecast statement will be read with interest.”
She added that recent admissions of mis-selling of US securities in 2019 will see Barclays lose around £450m.
“An independent review is underway and regulators are asking questions,” she said.
We’ll be watching closely for information on this next week and hope the original bill didn’t grow.
“Away from public error, Barclays’ diversified income model is expected to have benefited him.
“The trading arm should have benefited from recent market volatility, while rising interest rates should be good news for traditional banking.”
https://www.independent.ie/business/most-major-uk-banks-set-to-report-drop-in-profits-41583471.html “Most major UK banks” are expected to report falling profits