Lloyds share price remains in a downtrend
Lloyds is performing well but there are creeping fears the economic environment will deteriorate and that is hanging over the bank. In April, the firm issued its first quarter statement and it revealed that net income increased by 12% to £4.1 billion. Net interest margin – the margin that banks make on lending - increased to 2.68%. Statutory profit was £1.2 billion, down from £1.4 billion in the same period last year, but that metric was boosted by a net credit allocation. Mortgage lending edged higher by £1.7 billion, and the book now stands at £295 billion. It is possible that clients wanted to lock-in certain mortgage rates as there was speculation the Bank of England would keep lifting rates – which they did. Customer deposits ticked up by 1% to £481.1 billion, which is helping with the loan to deposit ratio of 94%. Lloyds’ balance sheet is in rude health as the CET1 ratio is 14.2%.
In regards to the operational outlooks, things are looking upbeat as the bank predicted that net interest margin would top 270 basis points, which was an upgrade on the 260 basis points guidance issued in February. Lloyds announced that return on tangible equity would exceed 11%. The underlying business took a backseat to the macroeconomic outlook as the group cautioned the British economy looks “uncertain”.
It is concerning that the Lloyds share price is in a downtrend even though the Bank of England hiked interest rates five time in the past six months. Typically, in an environment of rising rates, banks often perform well as lending margins improve. Not only have the BoE lifted rates numerous times, but there could also be further rate hikes on the horizon. Earlier this week, BoE governor Andrew Bailey, said that if inflation remains persistently higher, the bank might choose to act forcefully. Some market participants took that as a clue the bank might hikes rate by 50 basis points. When the Lloyds share price is falling in the face of interest rate rises, it suggests the fears about a potential UK recession are outweighing the likelihood of improved lending margins.
Lloyds share price has been trending lower since January and recently it fell to a four-month low. The MACD indicator shows us that momentum is in negative territory, which suggest the bears are in control. While the stock holds below the three simple moving averages, the wider negative trend should continue. Further declines from here could see it target 38p. Should it rebound, it might run into resistance at 44p or 46.2p.