The analysts, however, raised the share price targets on the larger British banks, catching up with the sector’s recent rerating on the back of last month’s vaccine news.
A cautious view on the sector remains, though, with the analysts warning “the cost of collecting on the impending wave of non-performing loans together with Covid bounceback costs challenge potential efficiency gains for UK banks next year”.
While UK banks’ costs are on average down around 4% year-on-year, many of the drivers are seen as temporary.
To meet the market’s expectations, the banks overall need to find 6% of their cost base in efficiencies next year to offset pressures from the lower rate environment, the analysts said.
“We see this as very challenging – the average cost reduction in any one year is only 2%.”
Along with Virgin Money UK PLC (LON:VMUK), the analysts said, this trio are more “prescriptive and conservative on guidance”, so don’t need much by way of efficiency gains to avoid downgrading forecasts.
On the other hand, with the City consensus for HSBC and NatWest costs to decline, the analysts said the expectations for HSBC, NatWest and Lloyds are “more difficult to achieve”.
Deutsche upped its target price for BARC from 135p to 165p, HSBA from 305p to 350p, for LLOY from 32p to 35p, NWG from 100p to 130p, for STAN from 415p to 480p and for VMUK from 105p to 150p.