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Are UK Banking Stocks Attractive After Earnings?

Shares in Lloyds Banking Group, Barclays, and NatWest have made a strong start to the year after a very positive 2024.

Christopher Johnson 5 March, 2025 | 3:32PM
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UK’s listed retail banks enjoyed a standout 2024 in share price terms and that has continued into 2025. Earnings season has supported this momentum, with Lloyds Banking Group shares up 34% since the start of the year.

While the Bank of England cut interest rates in February and are expected to fall further this year, the base rate is higher than many anticipated in early 2025. This has supported net interest margins at banks, a key metric that investors watch closely.

Having fallen back to target, UK inflation has risen again, and that suggests the Bank may be more cautious this year in cutting rates.

“Despite the fact that interest rates are falling, [they are] structurally in a place where they are going to be much higher than they were 10 years ago when interest rates were close to zero for a whole decade,” says Michael Field, chief equity strategist at Morningstar.

“[Banks’] profitability will eventually fall but it is going to take a while to get there. And when it does, they are still going to make more money than they made 10 years ago.”

Are UK Banks a Good Investment?

Lloyds Banking Group LLOY, Barclays BARC, and NatWest NWG all announced results recently.

According to Morningstar analysts, Lloyds is the most undervalued of the three. Its stock is currently trading at 72.40p, below Morningstar’s fair value estimate of 78p. A Financial Conduct Authority probe into allegations of car finance mis-selling continues to weigh on its share price.

NatWest leads the pack in share price performance, meanwhile, taking the title of the UK’s top performing stock of 2024, doubling in value. But it’s now screening as overvalued; it’s trading at 470p, against a fair value estimate of 360p.

Barclays is trading at 306p, slightly above Morningstar’s fair value of 290p, with shares up nearly 15% so far in 2025.

3 Top UK Bank Stocks to Watch

Key Morningstar Metrics for Lloyds Banking Group LLOY

Analyst: Niklas Kammer, CFA


“Lloyds reported 2024 underlying profits of £6.3 billion, below the £6.7 billion consensus estimate collected by the bank prior to the release,“ explains Niklas Kammer, equity analyst at Morningstar.

“The bank booked another £700 million provision related to the motor finance probe currently with the UK Supreme Court. This drove most of the consensus miss, with operating performance in line with expectations. We maintain our 78p fair value estimate.

“In total, Lloyds has now set aside £1.2 billion for the motor finance probe, which we believe is adequate. Net interest income declined 7% to £12.8 billion. However, net interest margin continued expanding during the fourth quarter.”

“Other income, up 9%, was good, showing traction across commercial and retail banking as well as the insurance and pension business. The rapid rise in interest rates over the last two years had lowered the contribution of non-interest income, but one should not dismiss the structural improvements Lloyds has made on its commission and fee income.”

Lloyds Banking Group Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct. Latest price as of 10:59. Data as of Feb. 24, 2025.

Key Morningstar Metrics for Barclays BARC

Analyst: Niklas Kammer, CFA


At its recent results, Barclays announced a full-year dividend of 5.5 pence, bringing its total dividend paid including the interim dividend for 2024 to 8.4 pence. The bank also plans to launch a share buyback worth £1 billion in the first quarter of 2025.

Kammer says the results were strong.

“Barclays reported fourth-quarter profits before tax of £1.66 billion, 3% ahead of consensus estimates collected by the banking group prior to the release," he says.

“Income generation was strong across the board, 4% ahead of consensus. Good performances in the investment bank, private bank, and wealth management segment stood out positively. We raise our fair value estimate to 290p per share primarily due to lifting our net interest income and investment banking income assumptions.

“We believe a total buyback through the year worth between £1.8 billion and £2 billion is reasonable given Barclays’ profitability.”

Barclays Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct. Latest price as of 11:09. Data as of Feb. 24, 2025.

Key Morningstar Metrics for NatWest NWG

Analyst: Niklas Kammer, CFA


NatWest Group’s total income in 2024 fell by 0.3% to £14.7 billion in 2024 from £14.75 billion.

Yet operating pretax profit rose 0.3% to £6.2 billion from £6.18 billion. The bank’s net interest income increased 2% to £11.28 billion in 2024 from £11.05 billion in 2023.

In Kammer’s view, a slower pace of rate cuts, along with structural hedges, handed the Edinburgh-based bank its status as the UK’s top-performing stock in 2024.

“While mortgage margins remain under pressure due to the competitive nature of the UK mortgage market, higher deposit spreads have been a boon for NatWest,” Kammer says.

“However, greater competition on deposits and a shift from current accounts into savings should offset some of the gains NatWest booked over the last two years.

“With the base rate likely to be cut further in 2025, pressure on the net interest margins could intensify despite the hedging portfolio still forming a tailwind. All that said, we anticipate margins to remain well above levels seen during the close-to-zero percentage point base rate years of the recent past.”

NatWest Group Stock vs. Morningstar Fair Value Estimate

Source: Morningstar Direct. Latest price as of 11:01. Data as of Feb. 24, 2025.


The author or authors do not own shares in any securities mentioned in this article. Find out about Morningstar's editorial policies.

The information contained within is for educational and informational purposes ONLY. It is not intended nor should it be considered an invitation or inducement to buy or sell a security or securities noted within nor should it be viewed as a communication intended to persuade or incite you to buy or sell security or securities noted within. Any commentary provided is the opinion of the author and should not be considered a personalised recommendation. The information contained within should not be a person's sole basis for making an investment decision. Please contact your financial professional before making an investment decision.

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Christopher Johnson  is data journalist at Morningstar

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