UK banks are expected to report strong first-half profits this week, even as the ongoing Iran war raises fresh concerns about household finances and loan defaults.
Barclays (BARC.L), Lloyds Banking Group (LLOY.L), and NatWest are all scheduled to release their half-year results on Tuesday, Thursday, and Friday respectively.
Experts broadly anticipate that all three lenders will show profit growth compared with the same period in 2025, despite a volatile economic backdrop driven by the Middle East conflict.
Barclays is forecast to report a pre-tax profit of approximately £5.9 billion for the first six months of the year, up from £5.2 billion in the prior year period.
Lloyds is expected to post profits of around £4.1 billion, compared with £3.5 billion during the same period in 2025, reflecting continued strength in its core lending business.
Higher interest rates have played a significant role in supporting bank revenues, with lenders benefiting from a prolonged period of elevated borrowing costs driven by inflation concerns.
Average fixed mortgage rates surged in April following the financial uncertainty triggered by the US-Israel war with Iran, and have continued rising in recent weeks.
Steve Payne, KPMG’s UK head of banking, said banks are likely to continue benefiting from interest rates staying higher for longer, in response to concerns about inflation.
However, Payne cautioned that the conflict is beginning to affect household finances in ways that could hurt credit quality across the sector in the coming months.
He said the impact of the conflict means “we will probably see at least some marginal, maybe slightly bigger than marginal, increases in the bad loan provisions that they put in place for people defaulting.”
“We’ve seen the impact of the war in terms of things like higher fuel and food costs and generally pushing the cost of living higher,” he said.
Payne added that “there is a lag… the longer it goes on for, the more likely we are to see that credit quality deteriorate,” signaling that risks may build over time.
He said banks were likely to take a “realistic approach” by increasing their provisions, reflecting a cautious but measured response to the shifting economic environment.
Richard Hunter, head of markets for Interactive Investor, also flagged growing risks, noting that concerns have mounted over higher inflation and reduced consumer spending amid the ongoing conflict.
Hunter said “levels of customer defaults and impairment charges for possible bad debts will be central for sentiment,” as investors scrutinize each bank’s results this week.
He noted that while higher interest rates are broadly positive for banks, they also raise serious affordability questions, adding that “reported loan demand will be under the spotlight.”
