UK’s Big 4 banks raise loan loss provisions, Lloyd’s most wary of economic downturn

The UK’s Big Four banks increased loan loss provisions in the third quarter to prepare for next year’s recession, with Lloyds Banking Group PLC posting the biggest increase since a year ago.

The expected sharp drop in home prices and soaring unemployment amid slowing growth and a tight cost of living have prompted Lloyd’s to build up reserves for potential losses in 2023. I was. Interest rates, CFO William Chalmers said Oct. 27.

Executives from three other major UK banks – HSBC Holdings PLC, Barclays PLC and NatWest Group PLC – made similar statements.

Impairment charges, which reflect provisions for potential credit losses, increased significantly in the third quarter compared to the same period in 2021 and the previous three months, according to data from S&P Global Market Intelligence.

NatWest recorded an impairment charge in the second quarter versus an impairment charge in the third quarter due to a “more challenging” macroeconomic outlook, but noted that “significant signs of stress from customers We haven’t seen it yet,” CEO Allison Rose said on Oct. 26. 28 Earnings announcement.

HSBC and Barclays have larger global businesses, more diversified loan holdings and are preparing for higher credit losses in the UK in 2023. Barclays’ UK business is well-positioned to benefit from rising interest rates which have contributed to a “significant” increase in the group’s net interest income, Chief Executive Officer Coimbatore Venkatakrishnan said on 26 October. said in its earnings report.

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Net income for HSBC, Lloyds and NatWest declined year-over-year and on a quarterly basis, with higher impairments weighing on earnings.

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Net interest income was significantly higher year-on-year across all banks, with Barclays and HSBC both posting year-on-year growth of over 50%.

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Banks and market observers expect rising interest rates to be the main driver of UK-based earnings in the future, even if the hike caused mortgage rates to rise and fueled consumer concerns about affordability. increase. Lloyd’s, which holds the largest share of the UK mortgage market, has already started repricing its books, but the outlook remains bright.

“The tailwind outweighs the headwind.” CFO Chalmers said:

Analysts at investment bank Berenberg expect Lloyd’s to see mortgage lending decline about 1% in 2023 and consumer credit overall flat. Analysts said it has the ability to earn from interest rate hedging.

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