What to watch out for in the UK bank earnings season

On Thursday, () will be the first of the FTSE 100 banks to report its full-year earnings numbers, with a couple of themes that will be running through all of the sector’s results.

PLC () this Friday is the second in line, with PLC (LON:), PLC () and () respectively on Tuesday, Wednesday and Thursday next week.

For all of Britain’s Big Five banks, investor eyes will be looking out for dividend news after the banking regulator in December lifted the temporary ban it had imposed eight months earlier in the teeth of the initial coronavirus crisis.

The Bank of England’s Prudential Regulation Authority arm, which last spring had told the banks to hold fire on payouts due to concerns about the potential effect of the coronavirus pandemic, now says that banks are sufficiently “well capitalised and able to support the economy”.

True to its name, the PRA said dividends should be “prudent” when they are restarted in the second half of this year, noting that there are still high levels of economic uncertainty as a result of the pandemic, with ongoing economic disruption from the effects of the virus, widespread government economic support still in place and unemployment expected to climb.

The cancellation of final or fourth-quarter payments for 2019 and any quarterly or interim payments for 2020 saved them around a total of £14bn in cash.

After the Big Five banks set aside £20.3bn in credit and asset impairments in the first three quarters of 2020, these charges were slashed in the third quarter, although the lockdowns in November and currently in place may mean the banks tread carefully.

Another theme is that non-interest income is expected to have remained subdued in the fourth quarter to come under further pressure in 2021, especially as those lenders with investment banks will see their capital market revenues normalise.

Looking to 2021, continued pressure on net interest income from low interest rates and a mix shift towards mortgages and government-guaranteed SME lending and away from credit cards, and normalisation of investment bank revenues, means it’s hardly going to be easy street for the banks.

All the lenders faces the long-term challenge about how to make money amid super low interest rates, with the threat of negative rates still being bandied about by the BoE, so they will be treading a fine line on how to keep investors on side with dividends yet balance pressures on their ongoing core operations.