Lloyds Banking Group and NatWest are likely to be big winners if interest rates start to go up, argues Credit Suisse.
Reports this week have suggested a rate hike is even on the cards before the end of this year and that bodes well for the bottom line of the major UK lenders, says the broker.
Worries over increasing mortgage competition have dampened share prices in the sector, but a turn upwards in the interest rate cycle will more than offset this it argues.
Incorporating the latest mortgage rates and potential base rate hikes into its 2022-24 forecasts, Credit Suisse has increased its 2022 EPS estimates by up to 6%, 2023by up to 15% and 2024 by up to 22%, with Lloyds and Natwest the biggest beneficiaries.
“UK economic re-opening is now well established. Lending volumes remain resilient. Costs are under control. Further write-backs appear increasingly likely. Capital return is back on the agenda,” added the bank.
As a result, the Swiss broker is ‘overweight’ UK banks with its order of preference Lloyds LLOY (Buy) followed by NatWest (Buy); HSBC (Buy); Barclays (Neutral) Standard Chartered (Neutral); Virgin Money (Neutral).