- FTSE 350 Banks sector ranks second out of thirty-eight over five years and seventh over a year, but only eighteenth so far in 2026
- Loss of momentum suggests worries are building over the global economy and loan losses
- Absence of rate cuts and impact on net interest margins is another concern
- Valuations are also much fuller than one, two or five years ago
- Pause in buybacks at NatWest and HSBC may also be a factor
“After a long, long time in the post-Financial Crisis wilderness, the banks are the second-best performing sector out of the thirty-eight industry groupings that make up the FTSE 350 index over five years, but they are starting to lose a little momentum and rank only eighteenth so far in 2026, after a modest advance of barely 2%,” says AJ Bell investment director Russ Mould.
“Chart-watchers may think they are looking at a triple-top in the FTSE 350 Banks index, so the imminent first-quarter results season is a chance for the lenders to back up analysts’ forecasts, which suggest the Big Five will generate record profits in 2026.
Source: LSEG Refinitiv data.
“For all of that, the quintet of Barclays, HSBC, Lloyds, NatWest and Standard Chartered may get off to a steady rather than spectacular start for 2026, even if analysts think their combined pre-tax income for the year will come to £58.2 billion, a healthy increase in 2025’s £50.7 billion and a figure that easily exceeds the pre-crisis peak of £35.8 billion in 2007.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered.
“For the first quarter of 2026 alone, analysts believe the quintet’s aggregate pre-tax profit will come in at £15.9 billion, marginally ahead of the £15.2 billion that they made between them in the first three months of 2025.
“If accurate, that would still represent a drop relative to the first quarters of both 2023 and 2024, when the Big Five racked up pre-tax income of £18.8 billion and £16.7 billion respectively, although Q1 2023 did feature a capital gain on disposal at HSBC.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered.
“Net interest income is expected to hold up well, thanks to an almost total halt in interest rate cuts around the world, structural hedges, and a steepening of the yield curve in many markets. That steepening is due to how long-term government bond yields are rising faster than near-term ones in response to war in the Middle East, as a result in turn of heightened fears of inflation and the possible impact of defence spending and any economic slowdown on already brittle government finances.
“The exceptions on net interest income could be HSBC and Standard Chartered, where a marked decline in the Hong Kong inter-bank lending rate (HIBOR) could weigh to some degree on overall group net interest income. The HIBOR fell sharply in Q1 largely thanks to the Hong Kong Monetary Authority’s efforts to maintain the currency peg by selling Hong Kong dollars and buying American ones.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered.
“However, the banks’ boardrooms could decide to take a conservative view of global events and take additional provisions against their loan books, just in case the war in the Middle East lingers or escalates and starts to have a knock-on effect to global trade flows and growth.
“The banks all increased loan loss provisions, at least on a precautionary basis, after Russia invaded Ukraine in 2022. It would be no surprise to see them cite geopolitical uncertainty and the absence of expected central bank interest rate cuts if they do reveal an increase in loan impairment rates.
“In aggregate, analysts expect provisions for sour loans to come to around £2.6 billion across the quintet in Q1, compared to around £2 billion in Q1 2025.
Source: Company accounts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered.
“Meanwhile, investment banking operations could have had a good first quarter, if the results from their US rivals were a dependable guide, and analysts have pencilled in a big year-on-year jump in pre-tax income for Barclays here.
“Litigation and conduct costs should remain modest, especially as those with exposure to the UK motor finance industry believe that existing provisions cover the redress required by the Financial Conduct Authority.
“Attention will then switch to cash returns to shareholders, especially if profits do hold up. Barclays, NatWest, Lloyds and Standard Chartered continue to run share buyback schemes, although NatWest will then put any further schemes on hold following the £2.7 billion deal for wealth manager Evelyn Partners.
“Analysts believe that HSBC will declare an unchanged first-quarter dividend of $0.10 per share and they will also be interested to see if the bank gives any indication as to when its share buyback programme restarts after the pause imposed when it bought the 37% stake of Hang Seng bank it did not already own for $13.6 billion.
“Consensus forecasts suggest that the Big Five will deliver a record combined dividend payment of £19.1 billion in 2026. Further buyback announcements are required if the lenders are to match 2024’s record cash distribution via this mechanism of £17.6 billion.
Source: Company accounts, Marketscreener, analysts’ consensus forecasts for Barclays, HSBC, Lloyds, NatWest and Standard Chartered. *Buybacks total as declared as of 23 April 2026.
“Perhaps the biggest issue for investors in the big banks is valuation. They now all trade at a premium to their latest stated tangible net asset value (TNAV) per share figure, having traded at steep discounts ever since the Great Financial Crisis, at least until very recently.
“Bulls will argue that double-digit percentage returns on equity should enable them to grow TNAV, although any jump in sour loan provisions or a global economic downturn could puncture such optimism.
Source: Company accounts, Marketscreener, consensus analysts’ forecasts, London Stock Exchange data.
“On that note, one final feature will be any comment that the banks choose to make about private equity and private credit exposure.
“Shareholders and analysts will be interested to ascertain the lenders’ exposure, considering the First Brands and Tricolor blow-ups in America and the decision by certain private credit funds to block redemptions by nervous investors who want to take their money out.
“Some see this as an uncomfortable echo of the closure to redemptions of Bear Stearns mortgage-backed security-focused credit funds in 2007. Others are less concerned, arguing that the private credit and private loan industry in total is so much smaller than the mortgage derivatives market that caused so much damage in 2007-09, but any comments on loan book exposure to the big private loan and private equity providers will be of interest.”
