- Britain could see a rise in household and business loan defaults as per the latest survey conducted by the Bank of England.
- Loan defaults are seen as the latest crisis in the UK, which is already facing supply chain disruption and energy crisis due to a surge in wholesale gas prices.
- Lloyds Banking Group Plc, Standard Chartered Plc and HSBC Holdings Plc are among the major banks which could get impacted by probable loan defaults.
Britain could see a rise in household and business loan defaults as per the latest survey conducted by the Bank of England. Household loan defaults are forecasted to increase by the end of November 2021, mainly due to the end of the furlough scheme, rising inflation and prospects of an interest rate hike.
Loan defaults are seen as the latest crisis in the UK, which is already facing supply chain disruption and energy catastrophe due to a surge in wholesale gas prices. The survey conducted between 31 August and 17 September also showed a rise in unsecured lending like credit card loans in the third quarter, which is expected to increase further in the last quarter of 2021. As per market experts, the rise in unsecured lending is a red flag and might lead to more defaults in the banking system.
As per the Bank of England’s latest Financial Stability Report, the risk of default in the banking system has fallen since the peak created last year due to the Covid-19 pandemic. But given the recent forecast of a rise in unsecured lending might change the scenario as the default rate might rise.
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Let us look explore 3 FTSE listed banking stocks that would be in focus amid the latest warning:
Lloyds Banking Group Plc (LON: LLOY)
It is one of the largest financial service providers in the UK, serving over 25 million customers through its branch and digital banking network. It offers retail and commercial financial services to its customers.
In the first half of 2021, the lender reported a total income of £7,307 million, a drop of 6% compared to the prior period. Net interest income, a key revenue source for the bank, declined by 4% at £5,376 million during the period, mainly due to lower interest rates in the UK and change in asset mix. However, the company reported a significant improvement in profit before tax at £3,420 million compared to a loss of £290 million in 2020 following economic recovery after the Covid-19 pandemic. In upcoming quarters, the company’s profitability could witness improvement if it has the right combination of interest-earning assets mix.
Lloyds Banking Group Plc shares trade at GBX 48.79, up by 0.72% on 15 October at 8:20 am GMT+1 with a market cap of £34,390 million and a dividend yield of 4.0%.
Standard Chartered Plc (LON: STAN)
The company offers retail and corporate banking solutions across different countries. It also provides other services like wealth management, insurance, investment, and portfolio management.
The company reported an operating income of USD 7,618 million, a drop of 5% compared to the same period last year, while its net interest income was at USD 3,375 million during the first half of 2021. The net interest income was down by 4%, primarily due to the low-interest rate in many of its key markets. The company expects the net interest margin to normalise in the second half of the year due to strong customer demand. As a result, the company has medium-term guidance of 5-7% growth in FY22.
Standard Chartered Plc shares trade at GBX 490.80, up by 1.11% on 15 October at 8:20 am GMT+1 with a market cap of £14,946 million and a dividend yield of 2.3%.
HSBC Holdings Plc (LON: HSBA)
The company is one of the largest financial institutions globally. It has operations in over 64 countries and serves over 40 million customers providing its client with retail and institutional banking services.
The company reported revenue of USD 25.6 billion in the six months ended 30 June 2021. Different regions in which bank operates were profitable, with the UK business reporting profit before tax of over USD 2.1 billion. However, the net interest margin was down by 22 basis points at 1.21%, mainly due to lower interest rate scenarios globally after the Covid-19 pandemic to boost economic activities.
HSBC Holdings Plc shares trade at GBX 433.75, up by 1.82% on 15 October at 8:20 am GMT+1 with a market cap of £87,017 million and a dividend yield of 4.6%.