Lloyds, Barclays and NatWest: What to expect when the big banks update investors

The banking sector was buoyed last year by UK interest rates hitting their highest level for more than a decade, meaning lenders benefited from the cost of borrowing, particularly mortgages, surging.

Lloyds and HSBC were among the lenders to report record-high annual profits for 2023.

But earnings are set to have slowed as the high street giants feel the effects of a shift in customer behaviour, including more people locking away their cash into savings accounts with higher returns.

Lloyds is expected to report a profit of £1.7bn for the first three months of the year, a drop from the £2.3bn reported this time last year.

Investors will be closely watching the banks’ net interest margins, which show the difference between what they generate from loans and what they pay out for deposits.

They will also be keeping an eye on a possible rise in customers falling into arrears on their loan repayments in the latest period, or any other signs of consumers struggling.

For Lloyds, the net interest margin is expected to have edged lower since last year from 3.22 per cent to 2.93 per cent.

Matt Britzman, an equity analyst at Hargreaves Lansdown, said: “While the drop is expected and owes a great deal to being compared to the particularly strong environment this time last year, when rates were being hiked, anything lower than 2.90 per cent would likely be punished.”

Lloyds will also be under the spotlight over its exposure to the car finance market through its subsidiary Black Horse.

The banking giant revealed earlier this year that it had set aside about £450m to cover potential costs related to a major investigation by the Financial Conduct Authority (FCA) into whether people could be owed compensation for being charged too much for car loans. Lloyds could give a further update on whether the expected costs associated with this review have changed, with Mr Britzman describing the issue as the “biggest question mark” currently hanging over the group.

Meanwhile, NatWest is set to report an operating pre-tax profit of £1.2bn, down from the £1.8bn quarterly profit it reported last year.

The banking group has a refreshed management team with Paul Thwaite at the helm as chief executive, and Rick Haythornthwaite recently stepping in as the new chairman.

Barclays is set to report a pre-tax profit of £2.2bn for the first quarter, down from £2.6bn reported last year.

It provided some good news for shareholders in February when it said it was aiming to save about £1bn by making the bank more efficient this year, and targeting about £2bn worth of savings in total by 2026.