UK Bank Stocks to Watch in 2023

Roberto Rivero

UK bank stocks have been largely out of favour with investors since the “Great Recession” of 2008 - from which the sector has still not fully recovered. Since then, banks were forced to operate on record low interest rates for years, negatively affecting their ability to generate revenue.

However, that all started to change last year. At the beginning of December 2021, the Bank of England’s (BoE) base rate sat at 0.1%. A little over a year later and this figure has risen sharply to 3.5% and is forecast to increase further in 2023. With interest rates on the rise, could UK bank shares be a good option for investors in 2023? In this article, we will examine the prospects of 3 of the largest UK bank stocks: Lloyds, Barclays and HSBC.

UK Bank Shares – The Current Climate

For well over a decade, the UK banking sector weathered fairly torrid conditions – which led most investors to shun UK bank shares.

First was the financial crisis of 2008 and its aftermath, which hit banks particularly hard, leading to the government famously bailing out both Lloyds Bank and NatWest – then called the Royal Bank of Scotland.

The next shock came from the result of the 2016 Brexit referendum, where the UK decided that their future lay outside of the EU and its single market. This was followed by more than four years of drawn out negotiations and uncertainty regarding the future relationship between the two.

Then, of course, in March 2020 the coronavirus pandemic arrived in Europe, forcing many countries into economic lockdowns and causing UK bank stocks to plummet.

However, after years of record low interest rates, central banks began to raise base rates in order to curb rising inflation. As of December 2022, the BoE has raised its base interest rate nine times since December 2021, taking it to its highest level since 2008, and more increases are expected next year.

After operating on low rates for over a decade, UK bank shares could be set to benefit from an increase in deposits and the opportunity to generate more income from loan repayments.

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Lloyds

Despite once having a large overseas presence, these days Lloyds is very much a UK-centred operation. Likewise, despite previously having a large investment banking arm, Lloyds is now mainly focussed on retail banking. In fact, it is the largest retail bank in Britain.

Due to its change in structure, the future success of Lloyds is now heavily reliant on the UK economy. Is this a good thing? Yes and no.

A UK-centric operation means that Lloyds is much less vulnerable to external, overseas shocks and, at a time when uncertainty is rife across the globe, this can certainly be seen as a positive.

However, at the same time, its dependency on the future of the UK economy can be seen as a negative, as this will largely come down to how the UK economy performs post-Brexit.

Depicted: Admirals MetaTrader 5 – Lloyds Banking Group PLC Monthly Chart. Date Range: 1 July 1994 – 29 December 2022. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

The plunge in price highlighted by the yellow rectangle is the result of the financial crisis in 2007/8 – after which the UK government acquired a 43.4% stake in the group. In 2017, the UK government confirmed that all its shares had been sold.

Before the economic crisis, Lloyds shares were trading at around 280p, however, in the 14 years or so since the crash, Lloyds Bank shares have been stuck in a range between 20p and 90p.

Depicted: Admirals MetaTrader 5 – Lloyds Banking Group PLC Weekly Chart. Date Range: 22 September 2019 – 29 December 2022. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

Zooming in to the more recent price history of Lloyds Bank shares, we can see that, after reaching an 8 year low of 23.55p in September 2020, the Lloyds share price began to recover, but have since stalled and remain a long way from their pre-pandemic levels.

In 2022, Lloyds shares have been mostly flat, falling by around 3%. In the first nine months of the year, the UK bank’s net income rose 12% to £13 billion, largely driven by a 15% increase in net interest income. However, profit before tax dipped 7% due to a higher impairment charge reflecting the economic outlook at the time of the results.

At the time of writing, Lloyds shares have an attractive dividend yield of around 4.6%.

Barclays

The next UK bank shares we will look at are Barclays shares. Unlike Lloyds, Barclays maintains its international presence, operating worldwide, and runs a large investment banking division alongside its retail bank offerings.  

An international presence provides those considering investing in Barclays shares with diversification, as, unlike Lloyds, the success of Barclays is not reliant solely on the UK economy.

Depicted: Admirals MetaTrader 5 – Barclays PLC Monthly Chart. Date Range: 1 September 1994 – 29 December 2022. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

In the long-term price chart of Barclays shares above, we can again see the crash caused by the economic crisis in 2007/8 highlighted in yellow. Despite initially recovering from its low of 55.52p in January 2009, the Barclays share price has mostly been following a downtrend ever since.

Depicted: Admirals MetaTrader 5 – Barclays PLC Weekly Chart. Date Range: 29 September 2019 – 29 December 2022. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

Despite falling to its lowest level since 2009 due to the outbreak of Covid-19, the Barclays share price recovered fairly well, recovering its pre-pandemic levels before the end of 2021 and closing the year with a gain of 27%.

However, share price languished in 2022, falling 15%. As well as getting caught up in the negative sentiment surrounding the stock market, Barclays scored a bit of an own goal at the beginning of the year, breaching US requirements with regard to selling Exchange-Traded Notes (ETNs). This breach led to a loss of almost £1 billion.

This own goal, coupled with a significant increase in impairment charges, contributed to Barclays profit before tax falling 16% in the first nine months of 2022. But total income rose 14%, driven largely by a 34% increase in net interest income.

At the time of writing, Barclays has a dividend yield of 3.9%.

HSBC

The last on our list of UK bank stocks, HSBC, is another worldwide operation. It is the second largest bank in Europe and has a strong presence in Asia, where it was originally founded in British Hong Kong.

Asia remains HSBC’s largest market, with almost 50% of customer deposits and 50% of net operating income coming from this region in 2021. In fact, despite being the largest UK bank stock listed on the London Stock Exchange, HSBC actually has very little exposure to the UK economy.

This connection with Asia has no doubt been beneficial to HSBC in recent years as economies have boomed, but it has also put the bank in the middle of geopolitical tensions between the West and China. It also means HSBC finds itself heavily exposed to China at a time when Covid-19 infections are reportedly getting out of control.

Depicted: Admirals MetaTrader 5 – HSBC Holdings PLC Monthly Chart. Date Range: 1 September 1994 – 29 December 2022. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

In the long-term price chart of HSBC shares above, again we see the effects of the “Great Recession” highlighted in yellow.

However, unlike the other UK bank shares we have looked at so far, HSBC shares actually recovered fairly quickly, largely thanks to its operations in China. Although, in the decade or so leading up to the outbreak of the coronavirus pandemic, the HSBC share price has been quite volatile.

Depicted: Admirals MetaTrader 5 – HSBC Holdings PLC Weekly Chart. Date Range: 29 September 2019 – 29 December 2022. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

Looking at the development of the HSBC share price over the last couple of years, we note that, unlike the other UK bank stocks we have looked at so far, the decline caused by Covid-19 was more drawn out.

HSBC shares spent the majority of 2020 in a downward trend, reaching a ten year low of 281.35p in September 2020, after which price began to recover. In 2021, the HSBC share price gained 18% and rose a further 15% in 2022 – the only UK bank stock on our list to do so.

In the first nine months of 2022, adjusted profit before tax rose less than 1% to $17.2 billion, with net interest income soaring almost 17% to $23 billion. At the time of writing, HSBC stock has a dividend yield of 4.3%.

How to Invest in UK Bank Stocks

With an Invest.MT5 account from Admirals, you can invest in Lloyds Bank, HSBC and Barclays! In order to invest in UK bank stocks with Admirals, follow these steps:

  • Open an Invest.MT5 account and log in to the Dashboard
  • Next to your Invest.MT5 account details, click ‘Invest’ in order to open the WebTrader
  • Scroll to the bottom of the Market Watch window on the left of the screen, search for the UK bank shares you want to buy and add it to the Market Watch
  • Once added, click and drag the stock symbol onto the chart to open its price chart
  • Right-click on the chart, select ‘Trading’ and then ‘New Order’ to bring up an order screen. Here, you can select the number of shares you want to buy or sell and send your order to the market!
Depicted: Admirals MetaTrader WebTrader – HSBC Holdings Plc H1 Chart – New Order. Date Captured: 29 December 2022. Past performance is not a reliable indicator of future results.

Invest in UK Bank Shares with Admirals

As well as UK bank shares, investors who choose Admirals can buy over 4,300 individual shares and over 300 Exchange-Traded Funds (ETFs) from 15 of the largest stock exchanges in the world! Other benefits of the Invest.MT5 account include:

  • The ability to open an account with a minimum deposit of just €1
  • Free use of the world’s number one multi-asset trading platform, MetaTrader 5
  • Exclusive access to our Premium Analytics portal, where you can find the latest market news, sentiment and technical insight and no additional cost!

In order to register for an account today, click the banner below:

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  • The Analysis is prepared by an independent analyst Roberto Rivero, Freelance Contributor (hereinafter "Author") based on personal estimations.
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