The UK banking sector had a strong year in 2021, as the economy rebounded with impressive growth. Burhan Khadbai reports.

The UK economy recovered strongly in 2021 with growth of 7.4%, following a contraction of 9.8% in 2020. The UK’s largest banks also showed strong results, posting a significant increase in profits compared to the previous year.

Lloyds Banking Group is this year’s best-performing UK bank from the country’s 10 largest lenders, with an overall score of 5.27, up from sixth place last year. Contributing to its rise is its strong performance in profitability and return on risk, where it is ranked first. In 2021, Lloyds Bank reported a pre-tax profit of £6.9bn, far higher than the £1.2bn from the previous year as the UK economy rebounded faster than expected from the pandemic. The bank’s results received a boost from the release of £1.2bn of provisions it had taken against bad loans.

Yorkshire Building Society takes second place in the best-performing table, up from third, with a score of 5.18; the bank tops the table in operational efficiency. NatWest follows in third place, with a score of 5.11, making a big leap from last place in 2021. The bank’s rise can be explained by its top position in asset quality.

Barclays and Coventry Building Society remain in fourth and fifth places, with scores of 5.09 and 5.08, respectively. Investec Bank, last year’s best-performing UK bank, has dropped to sixth place with a score of 5.04. Investec Bank has seen its positions in return on risk and asset quality fall from third to eighth and fourth to eighth, respectively.

Virgin Money moved up one position to seventh with a score of 5.03, and Nationwide Building Society takes eighth with a score of 4.98. HSBC, the UK’s largest bank by Tier 1 capital, and Standard Chartered round off the top ranking, with the former dropping from second and the latter falling from seventh. HSBC ranks towards the end of the table for many categories, except liquidity and leverage. HSBC’s pre-tax profit stood at $18.91bn in 2021, narrowly missing forecasts of $19.1bn, while revenue fell 2% to $49.6bn.

In the Tier 1 capital country ranking, Standard Chartered moves up to fourth place, pushing NatWest down to fifth. Meanwhile, Yorkshire Building Society moves up to eighth, with Coventry Building Society and Investec Bank entering the top 10 ranking in ninth and 10th spots, respectively.

The UK’s banks had a strong year in 2021, but this year will be far more challenging with the economic slowdown and the impact of inflation. Nevertheless, there is reason to be bullish, with S&P forecasting moderate loan book growth in 2022 and 2023 for UK banks.

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