RBC Capital downgrades Lloyds to 'sector perform'.

Source: Sharecast

"Whilst structural hedge repricing should provide the bank with a material NII tailwind, today’s downgrade reflects our more cautious view on competition in the UK deposit market and second order implications for NIM, a dynamic we believe is underappreciated," RBC said.

RBC noted that despite being 6% below consensus adjusted pre-tax profit in FY28, an undemanding valuation keeps it from downgrading to ‘underperform’.

RBC Capital said that in a competitive deposit environment, its preference is to own banks that have: i) narrower ring-fence bank perimeters (less funding pressure from corporate loan growth, relative beneficiaries of ring-fence reform); ii) lower ring-fence bank loan-to-deposit ratios (correlated with lower deposit betas).

"Lloyds does not tick either of these boxes," it said. "Going forward, both these factors should mean more flexibility on deposit pricing and lower utilisation of expensive wholesale funding."

At 1050 BST, Lloyds shares were down 1.6% at 104.20p, also under pressure from reports that chancellor John Healey will raise taxes on the banking sector in his Budget later this month.