FTSE 100 banks Lloyds and Natwest set to profit despite lower interest rates
Amidst a backdrop of waning interest rates, FTSE 100 banking giants such as Lloyds and Natwest look set to continue to profit, according to analysts.
Lenders’ takings from net interest income (NII) remained steady in the first quarter, even after the Bank of England chopped interest rates four times to 4.5 per cent.
Since then, the Bank of England has cut the base rate further to 4.25 per cent, and further cuts seem likely.
However, Barclays analysts Aman Rakkar and Grace Dargan said the first-quarter reporting season confirmed “banks’ ability to grow NII strongly even in the face of falling UK base rates”.
They projected a base case of rates hitting three to 3.5 per cent would trigger average annual NII growth of around ten per cent for Lloyds and Natwest.
Even with a steeper drop of around two to 2.5 per cent, analysts forecasted annual growth of around six to seven per cent.
Markets have pencilled in up to four interest rate cuts for 2025, meaning two more rate reductions could be on the horizon.
“Falling UK rates expectations may be a near-term challenge to the domestic UK banks narrative, but really shouldn’t be,” said Rakkar and Dargan.
Net interest income and earnings were “set to grow strongly, ahead of target,” they added, even in the case of “sharply lower UK rates”.
Banks shrugged off falling rates
HSBC was the only FTSE 100 bank to record a drop in NII from the first quarter of 2024 to the same period in 2025.
In the first three months of 2024, interest rates hit a post-financial crisis high of 5.25 per cent compared to 2025, where the Bank of England cut rates to 4.75 from 4.5 per cent in January.
Alongside a resilient interest income performance, lenders benefited from a spike in trading income as investors sold off stocks in the face of geopolitical tensions at the start of the year.
This followed suit with their Wall Street counterparts, where takings from markets surged after President Donald Trump’s erratic rhetoric triggered recession fears.
But, all FTSE 100 banks upped their bad loan provisions in first-quarter reports on account of the changing geopolitical landscape after Trump’s sweeping tariffs.