UBS, the Swiss investment bank, has maintained buy ratings on its key UK domestic bank picks after April Bank of England lending data showed robust loan growth alongside signs of intensifying deposit competition from major high street rivals.
Total UK lending rose 4.6% year on year in April, unchanged from the six-month average, with corporate lending the standout performer at 8.6% growth, followed by consumer credit at 5.6% and mortgages at 3.2%.
Month on month, total loans edged up 0.2%, with consumer lending the strongest category at 0.6%, ahead of corporate at 0.3% and mortgages at 0.1%.
Back book loan yields were flat month on month in aggregate, while front book yields rose, driven by mortgages.
On the deposit side, total volumes were flat in April, masking a 1.5% fall in sight deposits offset by a 3.0% rise in time deposits, a pattern consistent with seasonal norms as cash ISA contributions accelerated following the tax year-end, rising 4.5% month on month.
The overall deposit back book rate ticked up to 1.95% from 1.93%, with the cumulative pass-through of Bank of England rate cuts since their July 2024 peak standing at 33% against a 150 basis point policy rate reduction.
Front book household time deposit rates rose 30 basis points month on month in April, reflecting higher swap rates and competitive pressures.
UBS flagged heightened deposit competition, noting Chase is offering 4.5% on easy access accounts to new customers, Santander’s Cahoot brand is paying 5% on balances up to £3,000, and Lloyds Banking Group’s MBNA unit is offering 4.85% for a fixed year.
UK domestic banks trade at 7.7 times 2027 forecast earnings and 1.4 times tangible net asset value, implying a cost of equity of 12.8% against the broader European banking sector’s 11.2%.
Barclays PLC (LSE:BARC) is UBS’s top large-cap UK domestic pick, with ‘buy’ ratings also held on NatWest Group PLC (LSE:NWG) and Lloyds Banking Group PLC (LSE:LLOY), alongside mid-cap buys on Shawbrook, Close Brothers and Paragon.