23rd May 2014
Lloyds (LLOY) has been tipped as the biggest winner of the ongoing recovery of the UK economy as lending increases and earnings growth is boosted.
Rohith Chandra-Rajan, an analyst at Barclays, said Lloyds ‘as the only UK-focused retail and commercial bank…will benefit the most from the ongoing UK economic recovery’.
He reiterated his ‘overweight’ stance on the shares and increased his target price slightly from 88p to 90p.
The hopes for Lloyds are pinned on a pick-up in lending that gives the bank ‘scope for further margin expansion’ that ‘should see a resumption of revenue growth for Lloyds in 2014’ and further growth up to 2016.
Demand for and the supply of credit is running at a high and, supported by economic growth, Chandra-Rajan expects lending to accelerate further. He forecasts Lloyds ongoingloans will increase 3% this year and rise to 5% by 2016 with ‘scope for outperformance’.
Although there is talk about an overheating property market in the UK and a scaling back of the government’s Help to Buy initiative, Chandra-Rajan is not concerned about the effect on lending at Lloyds.
‘Whilst concerns on an overheating housing market and likely to lead to some regulatory action, the effectiveness of macro prudential tools looks limited given the localised nature of the issue and still only muted mortgage growth,’ he said.
‘As a result we don’t see this as a major threat to lending volumes. We continue to see further margin expansion. We continue to expect further margin expansion and see the prospect of ongoing deposit repricing more than offsetting the negative impact of customers moving off standard variable rates and onto narrower spread front book mortgages. Combined with loan growth, this should see Lloyds increasing revenues for the first time since 2010.’