Royal Bank of Scotland Group PLC (LON:RBS) has been upgraded to ‘equal weight’ from ‘ underweight’ by Barclays as it highlighted that bank’s “strong capital and in-line asset quality risks” but also warned of “continued earnings weakness beyond 2021” as a result of the coronavirus pandemic.
In a note on Thursday, Barclays said UK bank shares were pricing in “a severe downturn” and they expected “a combination of painful rate cuts and weak activity to drive pre-provision profits down [around 20% year-on-year]”.
“Lending under a government guarantee is a potential source of revenues/returns. But we think banks could be loss-making if probability of default approaches c10% (without security)”, Barclays said.
Analysts also cut their target prices for banks across the board, with RBS lowered to 130p from 190p previously while others such as Lloyds Banking Group PLC (LON:LLOY) and HSBC Holdings PLC (LON:HSBA) were cut to 50p from 70p and to 420p from 550p, respectively.
However, despite the forecasts of lower profits, Barclays said the predicted market focus on capital and asset quality meant RBS “no longer warrants an underweight rating”.
Shares in RBS were 0.4% lower at 103.9p in late-morning trading.