Britain’s biggest high street banks are on course to report a combined £10bn in half-year profits, even as the war in Iran pushes up mortgage rates and the cost of living for millions of customers.
Barclays is expected to post a pre-tax profit of about £5.9bn for the first six months of the year, up from £5.2bn a year earlier. Lloyds Banking Group is forecast to generate £4.1bn, compared with £3.5bn in the same period last year. Both lenders, along with NatWest, will report their half-year results this week — on Tuesday, Thursday and Friday respectively.
“Barclays and Lloyds are set to report £10bn half-year profits despite warnings that the Iran war may increase bad loans.”
The profit surge comes against a backdrop of financial turmoil triggered by the US-Israel war with Iran. Average fixed mortgage rates shot up in April as the conflict fuelled uncertainty, and have continued to tick higher in recent weeks. Higher oil prices have pushed up fuel and energy bills, squeezing household budgets.
Experts warned that the good times for banks may come at a cost. Steve Payne, KPMG’s UK head of banking, said the impact of the war means “we will probably see at least some marginal, maybe slightly bigger than marginal, increases in the bad loan provisions that they put in place for people defaulting.” He added: “We’ve seen the impact of the war in terms of things like higher fuel and food costs and generally pushing the cost of living higher. And inevitably at some point that has to have an impact on credit quality. There is a lag… the longer it goes on for, the more likely we are to see that credit quality deteriorate.”
Richard Hunter, head of markets for Interactive Investor, said: “Amid the ongoing conflict in the Middle East, concerns have grown for higher inflation and crimped consumer spending, which has left the banking sector under some pressure at various points throughout the year. As such, levels of customer defaults and impairment charges for possible bad debts will be central for sentiment.”
Hunter also noted that interest rates are now expected to remain higher for longer, which should be positive for banks but “also raises questions around mortgage availability and affordability, such that reported loan demand will be under the spotlight.”
For now, shareholders are smiling. But with the war showing no signs of ending, the real test for Britain’s banks may still be to come.