Citi stays at 'buy' Lloyds and NatWest Group, but 'neutral' towards most lenders

Analysts at Citi reiterated their 'buy' stance for shares of NatWest Group and Lloyds, but stayed at 'neutral' for most of the UK's domestic and international banks.

Their projections called for 'resilient' net interest margins and lower loan loss provisions among UK domestic banks.

International lenders HSBC and StanChart on the other hand might experience another leg down on the back of a drop in HIBOR, they said.

By and large, the analysts anticipated that most lenders would echo Santander UK's 2021 guidance for stable margins and a decline in costs and credit losses.

Lloyds however might be more cautious on the former, while NatWest was expected to provide some signalling on its intentions for capital returns.

At the sector level, Citi was 'overweight' UK domestic banks but 'neutral' on international lenders.

Nonetheless, among the former, Citi was at 'buy' for NatWest and Lloyds with the former being the broker's 'top pick'.

They were 'neutral' on Barclays, HSBC, StanChart - preferring HSBC over StanChart - Paragon Group and Virgin Money UK.

The reason for their neutral recommendation on Barclays was their expectations for lower investment banking revenues.

Even so, for UK domestic banks as a whole they expected positive earnings momentum, together with "large" capital returns in the backhalf of 2021, to offset the lack of growth.

To take note of, consensus profit estimates for UK lenders had troughed in October, Citi added.

In the case of UK international lenders, net interest margins were seen hitting a bottom in the second quarter, with loan growth improving, credit losses nearly halving when compared to 2020 and normal payout ratios returning to normal in the second half of the year.