Banks forecast to show declining profits as loans expected to sour

Only HSBC is set to grow its pre-tax profits, according to analysts.

The UK’s biggest banks are set to report their first-quarter results (Victoria Jones/PA) (PA Archive)

Most of the major UK banks are expected to show declines in profits as they could potentially start writing off bad loans.

All of the Big Five will report their first-quarter results over the next week, and analysts expect all but HSBC to lose ground.

AJ Bell investment director Russ Mould said: “The big US banks have, to some degree at least, set the tone for the Big Five FTSE 100 firms, with a return to taking loan loss provisions (rather than writing back 2020’s provisions in 2021), increased investment in digital services and lower levels of income from investment banking operations weighing on earnings, but with higher interest rates offering the prospect of increased net interest margins and interest income going forward.”

Lloyds Banking group is expected to report a little under £1.43 billion of pre-tax profit in the first three months of the year, down by a quarter since the same period last year.

Analysts who follow NatWest predict a 20% drop to £755 million, Barclays watchers expect its profit to fall 45% to £1.32 billion, while Standard Chartered is forecast to reveal a 1.04 billion dollar profit (£802 million), 27% lower than last year.

HSBC, however, will see pre-tax profit rise from 3.23 billion dollars (£2.48 billion) to 3.72 billion dollars (£2.85 billion), if the experts are right.

With inflation soaring, more people are turning to borrowing to help pay the bills, but this could lead to an increase in bad debts if inflation isn’t transitory

Sophie Lund-Yates, Hargreaves Lansdown

For Barclays, part of the drop will probably come for provisions that the bank takes for loans it believes might go bad.

It is expected to take a £299 million loan loss provision during the first quarter, compared with just £55 million a year earlier.

Sophie Lund-Yates, an equity analyst at Hargreaves Lansdown, said: “At the last update, consumers were starting to spend on credit at an increased rate as the world recovered from lockdowns.

“With inflation soaring, more people are turning to borrowing to help pay the bills, but this could lead to an increase in bad debts if inflation isn’t transitory. For that reason, the outlook statement will be read with interest.”

She added that recent admissions of mis-selling of US securities in 2019 will lead to Barclays losing around £450 million.

“An independent review is under way, and regulators are asking questions. We’ll be keeping a close eye out for any information on this next week and hoping the original bill hasn’t grown,” she said.

“Away from the public blunder, it’s expected that Barclays’ diversified income stream model has held it in good stead.

“Its trading arm should have benefited from recent market volatility, while rising interest rates should be good news for the traditional banking business.”