Britons chasing higher rates of interest on their savings pose a risk to UK bank profits, JPMorgan Chase & Co. analysts warned, following a disappointing earnings season for the sector.
(Bloomberg) — Britons chasing higher rates of interest on their savings pose a risk to UK bank profits, JPMorgan Chase & Co. analysts warned, following a disappointing earnings season for the sector.
British lenders cannot afford to pass on much more of the Bank of England’s recent interest rate hikes to depositors without adding “material” pressure on their net interest incomes, analysts including Raul Sinha wrote in a note to clients. Customers may therefore move their savings accounts funds elsewhere, they added.
The analysts said that a decline in deposits at the banks in the fourth quarter may accelerate as the new financial year offers more investment opportunities.
“The fall in retail deposits in Q4 could be an ominous sign of things to come, with the ISA season in March/April likely to drive further pressure driven by rate seeking deposit migration,” the analysts said, referring to the allure of Individual Savings Accounts (ISAs), which give Britons a tax-efficient way to save and invest up to £20,000 every fiscal year.
High street lenders compete with investment firms like Hargreaves Lansdown Plc and startups such as Moneybox on offering ISAs.
UK lenders have reported lackluster quarterly earnings and guidance, with the BOE’s interest rate hikes providing less of a boost to profit margins than anticipated. Shares of NatWest Group Plc, Barclays Plc and Lloyds Banking Group Plc all fell on the days they posted their fourth-quarter earnings, trimming rallies seen over the past month as the UK central bank stepped up efforts to tame inflation.
–With assistance from James Cone.
More stories like this are available on bloomberg.com
©2023 Bloomberg L.P.