Bank of America has revised its ratings for major U.K. banks, citing heightened competition across the sector that is pressuring deposit growth and margins. The brokerage upgraded Lloyds from Neutral to Buy, raising its price target by 8% to 140 pence. Barclays was downgraded from Buy to Neutral, with its target reduced by 6% to 580 pence, while NatWest Group retained its Buy rating and saw its target increased by 6% to 850 pence.
Analyst Perlie Mong highlighted that U.K. banks have operated in a favorable environment over the past two to three years, supported by steady margin expansion, resilient lending growth, and controlled cost pressures. However, the landscape is shifting as competition for deposits intensifies, particularly among mass affluent customers. All three banks are targeting 4%-5% lending growth, but loan-to-deposit ratios remain elevated, with most banks in the 90% range.
Barclays faces the most pronounced challenges, according to BofA. The bank’s latest guidance suggests cost growth of around 4% in 2026, up from prior expectations of broadly stable costs, while consensus forecasts project flat costs in 2027 and just 1% growth in 2028—an outlook Mong described as ambitious. Earnings estimates for Barclays were also trimmed, with earnings per share forecasts reduced by 6%-8% for both 2027 and 2028.
Historical deposit data from 2023, a period of intense competition, underscores the divergence among the banks. Lloyds experienced smaller deposit outflows than peers and retained most migration internally, whereas Barclays saw the largest outflow and has not grown deposits organically since then.
Valuation adjustments accompany the rating changes, with BofA rolling its valuation year forward to 2028. One-year forward price-to-earnings ratios for the sector average around 10x, with Barclays trading at a 7.8x multiple—a 26% discount to its historical average discount of 20%. Lloyds is valued at 9.2x, while NatWest trades at 8.2x.
