Barclays share price slumps as lender lowers UK guidance again
Barclays’ UK business is set to suffer from increasing competition in the deposit market as savers look to lock up better deals on their deposits.
Barclays UK said today that it expects its net interest margin (NIM) — a measure of the difference between what banks pay out and receive in interest payments – to be in the range of 3.05 per cent to 3.1 per cent.
At its half year results, the bank guided for 3.15 per cent which was itself a downgrade on the outlook at the beginning of the year.
Although banks have raked in bumper profits over the past few years, most analysts think the tailwind from higher rates is coming to an end.
As interest rates have climbed, competition for deposits and an increasingly competitive lending market have eroded lenders’ margins by forcing them to offer better rates.
Deposits in Barclays’ UK personal banking business have fallen by over £10bn since last year, although deposits across the business as a whole rose by £7bn.
“The challenging environment has persisted with customer behaviour driving a reduction in the NIM outlook and balances,” the bank said.
Finance chief Anna Cross said the outlook for the remainder of the year was no better. “We normally see deposits stabilise seasonally in Q4. But given the intensity of competition in the market. We now no longer think that will be the case,” she said.
Shares in Barclays were trading more than eight per cent lower as markets opened in London.
Despite the weaker outlook in the UK, Barclays outperformed analyst expectations. Pretax profit was marginally ahead of consensus at £1.9bn. The strong performance was driven by its consumer, cards and payments business.
However, the firm’s corporate and investment banking divisions undershot analyst expectations, with revenues of £3.1bn versus consensus expectations of just north of £3.2bn.
Chief executive CS Venkatakrishnan admitted the bank had faced “pockets of underperformance relative to US peers” in the mixed market.
However, he stressed that comparing the performance to the same period last year — when the volatility following Liz Truss’ mini-budget helped traders notch a record quarter — was giving a warped picture.
“In the market side, this was our second highest quarter ever in markets. Turns out that the highest Q3 in markets was a year ago. And that was because in our domestic market, we had a lot of volatility from the Truss budget,” he said.
Looking ahead to next year Venkat said there will be an investor conference in February where the bank will set priorities for the allocation of capital.
Without providing details on where changes could be expected, Venkat said “we are trying to make and run a more efficient organisation…You should expect us to look in all those cases where we think we can increase productivity.”
Barclays put aside £433m for bad loans, higher than last year but significantly lower than the £570m expected by analysts.
Banks put aside more in provisions in response to growing concerns over the health of borrowers. Higher rates have put increasing strain on consumers, leading to an uptick in delinquencies and arrears.
The bank noted that its impairment charges were driven by “updated macroeconomic scenarios” including higher unemployment in the UK and the impact of higher interest rates.
Barclays are the first high street bank to report results for the third quarter. Lloyds will report results tomorrow with Natwest following on Friday. Emerging markets focused Standard Chartered also reports on Thursday.