The previous 12 months have been nice for financial institution shareholders. The Barclays (LSE: BARC), NatWest Group (LSE: NWG), and Lloyds Banking Group (LSE: LLOY) share costs have all surged to multi-year highs.

The Lloyds share price has shot up 54.6% in 12 months and jumped 43.4% over 5 years:

Barclays shares have rocketed by 81.6% over one 12 months and 106.2% over 5:

NatWest inventory has crushed each, hovering 101.8% over one 12 months and 148.1% over 5:

What’s gone proper?

Maybe these share-price surges aren’t solely on account of banks’ administration groups and enterprise fashions? Their improved monetary outcomes could also be pushed by benign financial elements, with all three using rising tides. In 2024, UK gross home product grew by 0.9%, enhancing on 2023’s 0.4% progress. The unemployment price additionally stayed low and at the moment stands at 4.4%.

Most significantly — and opposite to market expectations — the Financial institution of England lower its base price solely twice final 12 months. From a 16-year excessive of 5.25% a 12 months, the Financial institution lower it to five% in August and 4.75% in November. This month, it lower once more, to 4.5%.

As rates of interest stayed larger for longer final 12 months, this boosted banks’ backside strains. Their internet curiosity margins — the spreads between lending charges and financial savings charges — beat forecasts. Thus, this added billions to banks’ income and money flows.

Bother forward?

That mentioned, 2025 will not be such a simple trip for British banks. These 5 issues may hurt their monetary outlooks in 2025-26:

1. Price reductions

The Financial institution of England is predicted to maintain lowering its base price in 2025, additional lowering banks’ internet curiosity margins and their profitability. Nevertheless, robust wage settlements would possibly maintain inflation properly above the goal of two% a 12 months, stopping aggressive rate-cutting.

2. Mortgage losses

By and huge, people and corporations paid their money owed with out drawback final 12 months, holding dangerous money owed and mortgage losses surprisingly low in 2024. However can this benign development proceed ?

3. Dangerous behaviour

I’ve typically remarked how banks ‘are great at finding landmines with their feet’. Our gaffe-prone banks usually lurch from one disaster to a different, incurring regulatory wrath, fines, and punishments alongside the best way.

The most recent mis-selling scandal includes sellers charging clients hidden commissions when arranging automobile loans. One estimate is that this swindle may cost a little £44bn in compensation. Yikes!

4. A housing downturn

Within the 12 months to November 2024, the common home price in England and Wales rose by 3% to £306,000. Regular, however not spectacular. Conversely, any pullback in home costs — or a full-blown crash — may hurt banks, forcing them to boost lending requirements and scale back mortgage volumes.

5. Tech tribulations

Beneath the floor, our trendy banking system is constructed on historical programs and packages, some courting again to the Nineteen Fifties. When this creaking monetary infrastructure fails, outcomes may be widespread and dear. For instance, an enormous tech blow-up a month in the past froze thousands and thousands of Barclays clients’ accounts. I anticipate greater and extra frequent fines for these blunders.

I’ll maintain tight

Regardless of the above considerations, my spouse and I’ll maintain the Lloyds and Barclays shares in our household portfolio. In any case, each have delivered robust capital positive aspects and juicy dividends, so why promote now? Having mentioned that, these shares are costlier than once we purchased in 2022, so we gained’t purchase extra at present costs.