Expert shares some advice on investing
The performance of the Lloyds Bank share price has been underwhelming despite strong profits over the last two years, The Motley Fool said in a recent analysis.
According to the article, the stock has started to rally amid speculation of interest rate cuts in 2024. The Motley Fool’s Stephen Wright said if the BoE were to announce cuts, the stock could go higher as part of a more general market rally.
Wright noted the “biggest headwind” for UK banks in 2023 has been the issue of bad debts. Customers are having to pay more interest as a result of higher borrowing rates. In some cases, higher rates have made loans unaffordable, causing a number of debts to go bad, he said. Lloyds recorded £662 million in charges for bad debts.
If there are interest rate cuts, this would come with a cost, according to Wright. “As rates have increased, the bank has been able to improve its net interest margins — the difference between the interest it pays out and the interest it collects,” said Wright.
“This is a key measure of banking profitability, especially in the case of Lloyds, which has no investment banking division and the largest share of UK deposits. I suspect this might contract again if rates get cut.”
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