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  • The notion of negative interest rates in the UK has been under deliberations as the government and the Bank of England want to revive the ailing economy
  • The London-headquartered banking behemoth HSBC Holdings will remain in focus with the Bank of England’s policy decision
  • The Bank of England’s MPC has been slated to meet in the first week of November 2020


Share price variation is largely driven by a number of factors including the persisting business environment, central bank’s policy decisions, upcoming projects, contingencies, asset quality, foreign exchange changes, involvement of foreign investors, efficiency of company’s management, short-term objectives, and the wholesome financial position of the company. When the stocks related to banking, financial services, and insurance (BFSI) are taken into consideration, the role of the central bank and the outcome of monetary policy committee (MPC) meetings become key drivers for the share prices. 


As the UK government is in discussions over a negative interest rate regime, the outcome of the Bank of England’s upcoming MPC meeting has been eyed by many investors, think tanks, industry bodies, banks, financial institutions, housing financiers and other lenders. The notion of negative interest rates in the UK has been under deliberations as the government and the Bank of England, collectively, want to revive the deprived state of the economy. 

Why Negative Interest Rates?

The narrative of negative interest rates in the UK has been primarily being discussed to kick start the spending cycle as the lending rates of banks are also likely to come down and the cost of raising funds for the businesses is expected to reduce. A wholesome rearrangement is supposed to take place, if the Bank of England introduces the negative interest rate regime in the country. 

The Bank of England’s MPC, which will be chaired by Governor Andrew Bailey, has been slated to meet in the first week of November and the meeting outcome will be announced on 5 November. 

The pandemic-laden strain has affected business activities to a never-seen-before magnitude including millions of job losses, shutdown of several small-to-large scale businesses, steep reductions in regular income streams and frozen demand for luxury goods and non-essential products. The nationwide economic crisis among some of the major sectors such as automobiles, travel & tourism, entertainment, sports, food & beverage, and conventional educational services has added to the turmoil. 

Likely Changes in Banks

The nature of business of the banks, financial institutions, small-scale lenders and other mortgage financiers is likely to get refurbished, a remodelling of all the offerings and services will be done and a rejig in business frameworks is also on the cards. 

With the likelihood of overhaul in the banking and financial services industry, a change in buying and selling perception with regard to banking stocks is expected to take place. 

With such a big revamp, the lenders with a wide banking structure and geographically-spread clientele may get a preference versus the newly-incorporated banks as the larger network helps in unrolling the new offerings at a faster tempo. We take a look at top banking stocks that will remain in focus in the coming weeks.

The London-headquartered banking behemoth HSBC Holdings Plc (LON: HSBA) will remain in focus in the near future with the Bank of England’s policy decision due in November. 

Shares of HSBC Holdings, the biggest UK bank by assets and market capitalisation, have been on a falling spree since the beginning of 2020 largely due to the persisting unrest between the European Union and the UK in connection with the trade agreement after 2020, the retaliatory steps taken by China and Trump administration in their head-to-head trade tussle and the relatively lower interest rates across the globe. 

The coronavirus crisis has further spiralled the disruption as a large number of people, as well the businesses seeking long-term loans and other short-term credit facilities have fallen substantially. The frequency and number of periodically-scheduled repayments has apparently come down, as a result of which, the asset quality has taken a massive hit.

Almost all the banks, be it a full-service lender or a small-scale financier, have parked an unexceptionally high quantum of funds to cover up the stressed assets or the non-performing assets (NPAs).

Stock performance: HSBC Holdings Plc

(Source: Thomson Reuters)

The stock of HSBC Holdings has lost more than 50 per cent of its value in the present calendar year with nearly a percentage drop on 15 October. According to the data available with the London Stock Exchange, HSBC Holdings has lost nearly £61 billion in the market capitalisation with the share price plummeting 50.16 per cent to £296.60 on 14 October from a share price level of £595.1 as on 2 January. 


Apart from HSBC Holdings, a handful of major full-services banks that are likely to remain in limelight include Standard Chartered Plc (LON: STAN), Barclays Plc (LON: BARC), Lloyds Banking Group Plc (LON: LLOY) and NatWest Group Plc (LON: NWG). 

Stock performance: Standard Chartered Plc

(Source: Thomson Reuters)

The stocks of all the four banks have performed largely similar in the nearly 10-month period of this year with the respective share prices falling between 40 and 60 per cent year-to-date (YTD). 

Shares of the London-based Lloyds Banking Group have been the worst hit among the four with the stock price crashing 57.68 per cent to £26.96 from a level of £63.71 a piece. The stocks of Barclays, Standard Chartered and NatWest Group have fallen 45.17 per cent, 50.8 per cent and 54.63 per cent, respectively. 

Stock performance: Barclays Plc

(Source: Thomson Reuters)

Stock performance: NatWest Group Plc

(Source: Thomson Reuters)

Stock performance: Lloyds Banking Group Plc

(Source: Thomson Reuters)

Other banking and financial stocks that will attract investors’ attention are Close Brothers Group Plc, OneSavings Bank Plc, Virgin Money UK Plc, Paragon Banking Group Plc, TBC Bank Group Plc, Bank of Georgia Group Plc, Mortgage Advice Bureau (Holdings) Plc, Secure Trust Bank Plc, Arbuthnot Banking Group Plc, and Metro Bank Plc. 

The aforementioned list of stocks is not an exhaustive one, a number of other financial stocks are likely to be impacted with the Bank of England’s interest rate revision.

As far as the pros and cons of negative interest rates are concerned, there will be a bunch of modifications in the banking products, as well as the requirements of customers. 

Cheaper access to credit facilities, a change in conventional investment preferences, cash-rich banks and definitive charges on the deposits etc, are some of the transformations that are likely to happen in case of negative interest rate regime. 

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