Investing in UK Bank Shares

Roberto Rivero

With the arrival of higher interest rates, UK bank stocks have been generating increased income from their lending operations, after being forced to operate at record low rates for more than a decade. Keep reading to find out about the prospect of some of the best UK bank shares in 2024.

Investing in UK Bank Stocks

Following the financial crisis in 2008, interest rates were held at record lows for more than a decade, which seriously hindered the banking industry’s ability to generate income from their lending operations. 

However, rising interest rates have allowed banks to generate more net interest income, which measures the difference between the interest banks earn on lending and the interest they pay to depositors. Higher rates tend to result in a larger difference between the two, meaning higher income for banks.

Whilst this has provided a tailwind for the industry over the last couple of years, the relationship between higher rates and bank earnings is not quite so straightforward. Although higher rates tend to boost to earnings at first, if they become too high, the positives start to become outweighed by the negatives.

Higher interest rates tend to lead to an increase in defaults, as borrowers struggle to keep up with repayments, and can also deter borrowers if they perceive the interest repayments on a potential loan as too high. Furthermore, higher rates can lead to an increase in competition between banks for deposits, as savers shop around for the best deals. 

Moreover, higher borrowing costs weigh on economic activity, and banks need a healthy economy in order to truly thrive. Nevertheless, UK interest rates appear to have peaked and are forecast to come down in 2024 which could allow banks to benefit from high rates with less of the risks associated with rates being too high. 

Are UK Bank Stocks Undervalued?

As the financial crisis swept around the world in 2008, UK bank shares were decimated in the stock market and have yet to recover. The total market capitalisation of the industry is a fraction of what it was before the market crash. 

Consequently, banking remains one of the cheapest sectors on the London Stock Exchange. The big four UK bank stocks – NatWest, Lloyds, Barclays and HSBC – all currently trade between four and six times their respective 12-month trailing earnings. This is significantly lower than the average of the FTSE 100, which has a price to earnings ratio of around 11. 

However, cheap doesn’t necessarily mean good. When it comes to the stock market, more often than not, cheap shares are cheap for a reason. Investors should be wary of operating under the assumption that UK banks will return to pre-2008 valuations anytime soon, if ever. 

Best UK Bank Shares to Watch

Whilst investors may find better growth opportunities elsewhere, UK bank shares may present an opportunity for those looking to generate income from their investment, as the top UK banks are historically reliable dividend payers.

Let’s take a look at two of the top UK bank stocks.

UK Bank Stocks


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 and the country’s largest mortgage provider. 

Consequently, Lloyds tends to be more sensitive to changes in interest rates than many of its competitors. Although this meant that rising interest rates initially provided strong tailwinds to the bank’s earnings, it now faces the prospect of mounting bad debt. 

As a UK-centric operation, Lloyds’ performance is tied to that of the UK’s economy and housing market. The UK’s growth is forecast to remain weak in 2024 before improving in 2025. This sluggish growth could hinder Lloyds’ growth over the next couple of years. 

However, as the leading player in the UK mortgage market, it could receive a boost if interest rates come down this year as they are forecast to do. 

Lloyds shares have struggled over the past decade, with any signs of upward momentum short-lived. In the ten-year period ending 31 December 2023, share price fell 39%. Nevertheless, after halting dividends in 2008, payments resumed in 2014 and Lloyds currently has a dividend yield of around 5.8%. 


The other UK bank stock we are going to take a look at is HSBC which, unlike Lloyds, is a worldwide operation. Consequently, whereas investing in Lloyds is essentially investing in the success of the UK economy, HSBC represents a more globally diversified investment. 

It is the largest bank in Europe by market capitalisation and has a strong presence in Asia, in particular Hong Kong and China. In fact, in 2022, 52% of its total revenue and 76% of operating profit was generated in Asia. Furthermore, the bank is actively prioritising growth in its Asian business whilst considering withdrawing from some of its less profitable markets. 

This Asian presence has no doubt been beneficial to HSBC in recent years as economies have boomed, but it also places the bank in the middle of geopolitical tensions between the West and China. It is also heavily exposed to the Chinese property market, which has been struggling for some time now. 

In the ten-year period ending 31 December 2023, HSBC shares fell 4%. But in the last three years share price has soared around 75%. Even following this strong growth, HSBC shares currently trade at approximately 5.8 times 12-month trailing earnings.

Unlike Lloyds, HSBC did not pause its dividends after the financial crisis in 2008, although they were cut significantly. At the time of writing, the bank has a dividend yield of 6.6%. 

Investing with Admirals 

With an Invest.MT5 account from Admirals, you can buy shares in UK bank stocks as well as more than 4,500 other companies and over 200 Exchange-Traded Funds (ETFs) from around the world. Click the banner below to register for an account today: 

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What is the largest bank in the UK?

The largest UK bank in terms of market capitalisation is HSBC.

Which is the best UK bank to buy shares in?

The answer to this question depends on the individual investor in question. For those who feel bullish on the UK economy, it may make sense to invest in a bank with a high exposure to the UK, such as Lloyds. However, for those looking for a more diversified option, HSBC could be a better choice.

Which UK banks pay the best dividends? 

This would depend on how you define the “best” dividends. At the time of writing, all of the big four UK bank stocks – HSBC, Barclays, Lloyds and NatWest – have dividend yields which are considerably higher than the average of the FTSE 100.

The highest of these yields currently belongs to NatWest at 7.4%. However, bear in mind that dividends are never guaranteed. 


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  1. This is a marketing communication. The content is published for informative purposes only and is in no way to be construed as investment advice or recommendation. It has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and that it is not subject to any prohibition on dealing ahead of the dissemination of investment research.
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  3. With view to protecting the interests of our clients and the objectivity of the Analysis, Admirals has established relevant internal procedures for prevention and management of conflicts of interest.
  4. The Analysis is prepared by an independent analyst Roberto Rivero, Freelance Contributor (hereinafter "Author") based on personal estimations.
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