Investing in UK Bank Shares

Following the financial crisis in 2008, UK bank shares fell out of favour with investors. However, higher interest rates have helped put them back in the spotlight. Keep reading to find out more about investing in UK banks and to learn about some of the top UK bank stocks in 2026.

The information in this article is provided for educational purposes only and does not constitute financial advice. Consult a financial advisor before making investment decisions.

Investing in UK Bank Stocks

After the financial crisis in 2008 and the subsequent government bailout, UK banks fell out of favour with investors.

As a result of the financial crisis, interest rates were held at record lows for more than a decade, which hindered the UK banking industry’s ability to generate income from lending operations.

However, higher rates in recent years have provided a tailwind and helped prompt an improved performance from many banks, as Net Interest Margins (NIMs) have risen.

Nevertheless, with the Bank of England (BoE) currently in a rate cutting cycle, NIMs might start to shrink as interest rates come down.

For those considering an investing in UK banks, it’s important to bear in mind that banking is a very cyclical industry. Whilst banks tend to benefit from an economic expansion, they are often among the worst casualties during a downturn.

Top UK Bank Shares

In the following sections, we will identify and examine two of the top UK bank shares.  

Lloyds

Despite once having a large overseas presence, these days Lloyds is very much a UK-centred operation. It’s the largest retail bank in the UK and the country’s largest mortgage provider. 

Lloyds provides a wide range of banking and financial services for both retail and commercial customers. The group is split into three core divisions:  

• Retail: Providing a wide range of retail services, including current and savings accounts, unsecured loans, credit cards and mortgages. 
• Commercial Banking: Services for small and medium businesses and corporate and institutional clients. Operations include lending, transactional banking and risk management services. 
• Insurance, Pensions and Investments 

As well as the operations outlined above, Lloyds is pivoting into the property rental market, with the goal of acquiring 50,000 rental homes through its Lloyds Living arm by 2030. As of October 2025, its portfolio consists of more than 7,000 such properties.

Of its three core segments, Retail contributes the most to the bank's top and bottom lines. In the year ended 31 December 2024, it accounted for 58% of net income and 50% of underlying profit. 

As a UK-centric operation with an emphasis on retail banking, Lloyds’s performance is tied to that of the UK’s economy and housing market. Depending on your outlook for the UK economy, that could be a positive or a negative. 

Whilst recent UK growth has been sluggish, the Bank of England is currently in a rate cutting cycle, which could provide a boost to both economic growth and the housing market. 

After pausing its dividend in the wake of the 2008 financial crisis, Lloyds resumed dividend payments in 2014 and has maintained its annual payout since, as well as returning capital through a number of share buyback programmes.

At the time of writing, 10 December 2025, the bank’s dividend yield is 3.4%, although it should be noted that future dividends are never guaranteed.

HSBC

HSBC is not only the largest bank in the UK, but also the largest in the whole of Europe in terms of both market capitalisation and assets. 

Unlike Lloyds, HSBC is a worldwide operation with a strong presence in Asia, where it generates most of its revenue and pre-tax profit. Indeed, in the last few years, the bank has pivoted more towards growing Asian markets.

This was reflected somewhat by its restructuring at the beginning of 2025. The bank created a dedicated division for Hong Kong, its second home market and most important in terms of profit.  

In 2024, around 37% of HSBC’s pre-tax profit was generated in Hong Kong. In second place, the UK accounted for 21% of pre-tax profit. As a result of its restructure, HSBC now operates through four main business segments: 

• Hong Kong: Retail banking and Wealth and Commercial Banking of HSBC Hong Kong and Hang Seng Bank. 
• UK: UK Retail Banking and Wealth and UK Commercial Banking. 
• Corporate and Institutional Banking: Commercial Banking (outside UK and Hong Kong) and Global Banking and Markets business. 
• International Wealth and Premier Banking: Premier banking outside Hong Kong and the UK, Private Bank, Asset Management and Insurance business. 

Given its renewed focus on Asian markets, the bank may appeal to investors who think favourably about the outlook in the region but who also want to maintain some exposure to the UK. 

However, its presence in Asia could also expose it to certain geopolitical risks. Most notably, any escalation in trade tensions between the US and China, and the reimposition of high tariffs would likely hit growth in the region, which could hurt HSBC’s outlook. 

HSBC has paid an annual dividend every year for more than 20 years, although future payouts are never guaranteed. At the time of writing, it has a dividend yield of 4.7%. 

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