Banking profits boom: the most improved UK banks of 2021

The UK bank sector earnings season was a mixed affair, but one thing was clear – massive profits are back! Here we rank the banks in order of improvement versus 2020 and look at anticipated outcomes for 2022.

The UK’s banking sector returned to form in 2021, generating eye-watering profits despite the pandemic and persistently low interest rates.

Adding up statutory pre-tax profit for the five big high street banks gives a grand total of £36.4 billion. That’s more than three times the £11.4 billion they made in 2020, driven in large part by the release of significant provisions for bad debts.

Taken together, the five banks released £3.7 billion of credit impairment charges in 2021 versus a £21.8 billion charge in 2020; a colossal difference of over £25 billion. As Barclays explained, the figures were driven by "an improved macroeconomic outlook, reduced unsecured lending balances and benign credit environment."

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Results were mostly in line with City expectations, although share prices reacted to discrepancies in fourth-quarter figures as much as the full-year numbers. There were hits and misses at every bank, although often not consistent across all five. Margins disappointed at some but pleased at others. It was the same for cost:income ratios, Return on Tangible Equity and other key metrics.

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• How Barclays has exceeded City expectations
• Will HSBC's profits boom keep investors happy?
• Standard Chartered kicks off bank reporting season

Obviously, share price performance has been affected by the conflict in Ukraine, and there are stark differences between the individual lenders. However, the FTSE 350 bank sector index is only down 1.8% in 2022 so far (as at mid-morning on Friday 4 March), putting it eighth best performer out of 40 sectors. Only the miners, oil, tobacco, defence and telecoms have done better.

In summary, all the banks did well in 2021, but some did better than others.

They’re not expected to improve profit by such big margins in 2022, as evidenced by current analyst forecasts.

However, while it’s still early in the year and forecasts will very likely be tweaked as we go through 2022, total profit for the big five banks is tipped to come in just below £31 billion, about 16% less than in 2021. Barclays (LSE:BARC) and Lloyds Banking Group (LSE:LLOY) are seen down £1 billion or more year-on-year and HSBC Holdings (LSE:HSBA)over £3 billion. NatWest Group (LSE:NWG) and Standard Chartered (LSE:STAN) aren't expected to differ much from last time.

Yes, the total is less than last year, but bottom lines do look very healthy and, crucially, sustainable. A string of anticipated interest rate hikes are also likely to underpin income at the big lenders this year and next.  

Now that all the numbers are in, we’ve listed the banks in order of improvement versus 2020.