Most of Britain’s big banks are expected to show lower profits as they could potentially start writing off bad debts.
All of the Big Five will release their first quarter results over the next week, and analysts expect all but HSBC to lose ground.
AJ Bell Chief Investment Officer Russ Mold said: “Big US banks have, to some extent at least, set the tone for Big Five FTSE 100 companies, with a return to loss provisioning. on loans (rather than rewriting 2020 provisions in 2021), increased investment in digital services and lower investment banking revenue weighing on earnings, but with higher interest rates offering the prospect of increased net interest margins and interest income in the future.
Lloyds Banking Group is expected to record just under £1.43bn in pre-tax profit in the first three months of the year, down a quarter from the same period last year.
Analysts who follow NatWest are predicting a 20% drop to £755m, Barclays watchers expect its profit to drop 45% to £1.32bn, while Standard Chartered is expected to reveal a profit of $1.04bn (£802m), 27% less than last year.
HSBC, however, will see its pre-tax profit drop from $3.23bn (£2.48bn) to $3.72bn (£2.85bn), if the experts are correct.
For Barclays, part of the decline will likely come from provisions the bank takes for loans it believes could go wrong.
It is expected to take a loan loss provision of £299m in the first quarter, up from just £55m a year earlier.
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said: “As of the last update, consumers were starting to spend on credit at an increased rate as the world recovered from lockdowns.
“With inflation soaring, more and more people are turning to borrowing to help pay bills, but this could lead to an increase in bad debt if inflation is not transient. For this reason, the forward-looking statement will be read with interest.
She added that recent admissions of mis-selling of US securities in 2019 will result in a loss of around £450m for Barclays.
“An independent review is underway and regulators are asking questions. We will keep a close eye on any information on this next week and hope the original bill has not increased,” she said.
“Far from the public blunder, Barclays’ diversified revenue stream model is expected to have held it in good stead.
“Its trading arm should have benefited from the recent market volatility, while rising interest rates should be good news for the traditional banking sector.”