Glimmers of optimism expected from UK bank earnings

As UK banks prepare to report their half year earnings, Paula Smith, Head of Banking KPMG UK, expects the overarching message to be one of caution tempered by just a glimmer of optimism.

Paula says: “Whilst banks have broadly fared well over the course of the pandemic, there is still a long way to go with governmental support mechanisms just beginning to wind down and question marks remaining over the economy.

“Now that dividend payments are back on the table, no doubt banks’ earnings reports will commit many inches to rationalising decisions on that front. Whilst shareholders will rightly expect some return, the pandemic has demanded significant tech investment with agile working creating new challenges and punishingly high volumes of scams. UK consumers and SMEs are also likely to need continued support as pandemic measures come to an end, banks will need to tread a careful line between looking after operations, customers and shareholders.

“I don’t expect to have to read the earnings announcements for long before I gain some insights into what each bank is doing on ESG. Managing climate risk and getting to grips with ESG reporting will remain critical not just to banks’ resilience but also to their ability to stay on the right side of investors, public sentiment and regulators.

“Just as we saw in the US, low interest rates will mean continued low net interest income which is unlikely to be offset by the rise in mortgage borrowing. Key players in retail banking are withdrawing from the market as the search for yield is so difficult to come by in this space. Whereas US banks benefitted from the M&A activity of their investment banking teams this isn’t a cushion the UK can necessarily rely on.”  

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