UK banks: Cautious Optimism

Research evidence excerpt

UK banks: Cautious Optimism

Deutsche Bank Group

Deutsche Numis Research

Europe Industry Date

United Kingdom 12 May 2026

UK banks

Banks Industry Update

Banks

Cautious Optimism

Robert Noble

Cautiously optimistic Research Analyst

UK banks generate substantial amount of shareholder value over the next 3 +44-020-754-10088

years. TNAV and dividends grow in the mid to high teens per year. Higher rates are

Gunjan Bhatt

a positive for the sector overall and the reaction of spreads so far supports a better Research Associate

income outlook. Economic and political uncertainty prevents us from factoring in

rate rises at this stage. We remain positive overall. Barclays has shown a better

ability to capture the upside from volatility. Natwest is overly discounted relative to

Lloyds despite greater rate exposure. And Shawbrook/Paragon are too deeply

discounting economic uncertainty.

UK banks generate substantial amount of value

TNAVps plus DPS grows at 11% this year rising to 15-16% in 2027 and 2028. 2026

has been negatively impacted by the rise in interest rates and the depreciation of the

USD- but they are technical factors rather than fundamental changes. We see the

highest growth in TNAVs plus DPS for Lloyds and Natwest at 50% and 60% at

Shawbrook.

Higher rates are good for banks

The rate environment favours domestic UK banks. We factor in no rate changes

but if we mark to market it would add 5% to Natwest 2028 profit. HSBC and

Standard Chartered benefit less due to lesser exposure to GBP/EUR rates.

Spreads have held up

Loan and deposit spreads have moved as expected so far. Mortgage rates have

tracked swap rates higher. Deposit spreads saw some reprieve as rate rose but rates

are starting to rise and partially offset the benefit. Deposit spreads are the key driver