UK banks set to report record profits of £37bn beating pre-financial crisis highs

The UK’s top banks are set to unveil record profits in the next two weeks after sharp interest rate hikes boosted the lenders’ coffers last year.

The big five FTSE 100 banks – Barclays, HSBC, Lloyds, NatWest and Standard Chartered – could post cumulative pre-tax profits of £37.4bn as they reveal their earnings for 2022, analysts at AJ Bell said.

“If that forecast is accurate… then the quintet would put up a performance four per cent higher than in 2021 and exceed the pre-financial crisis high of £35.7bn generated in 2007,” Russ Mould, investment director at AJ Bell, told Morning Wire

After a decade of ultra-low interest rates, sharp hikes throughout 2022 widened banks’ net interest margins – the difference between what banks pay out and receive in interest payments – and earned them bumper profits.

Mould said that each basis point move was “the equivalent of an extra £240m in pre-tax profit” on an aggregate loan book of £2.4trn across the five banks.

The growing profits has drawn the ire of political figures in recent months who have accused bank bosses of profiteering from central bankers’ moves to tame inflation.

Lib Dem treasury spokeswoman Sarah Olney told Morning Wire yesterday that the profits will “seem like a kick in the teeth” for working people while mortgages go up by “hundreds of pounds a month for Londoners”.

The bosses of Barclays, HSBC, Lloyds Banking Group and NatWest were last week forced to defend the rates they pay savers and charge borrowers under hostile questioning from the influential Treasury Select Committee.

The bumper profits have also raised speculation of a windfall tax, but analysts said it was unlikely to happen and warned that moves to slap further taxes on banks risked driving them overseas.

“The multinational banks have got choices. Choices as to where they grow, invest, employ people and build their balance sheets,” Richard Milnes, UK Banking Tax Partner at EY, told Morning Wire

He added that higher tax rates would “absolutely […] become a relevant consideration as to where they choose to invest and grow.”

Lobby group UK Finance has warned that banks in the UK are already penalised by higher tax rates than international counterparts, with London lenders paying a total tax rate of 45.3 per cent in 2022 – nearly 18 percentage points higher than New York.

Jeremy Hunt looked to boost the appeal of the UK to banks by slashing a surcharge on profits to three per cent in the Autumn statement last year.

Barclays kick off earnings season on 15 February, followed by Standard Chartered on 16 February and Natwest on 17 February. The following week, HSBC results will be released on 21 February before Lloyds conclude the season on 22 February.