The Motley Fool

Will 2022 be the year the Lloyds share price takes off?

View of Canary Wharf
Image source: Getty Images.

Lloyds (LSE: LLOY) has been a pretty poor investment to own over the past few years. After the financial crisis, the lender struggled to rebuild. But after around a decade, it was finally standing on its own two feet. 

The group had restructured its balance sheet, slashed costs, and streamlined operating processes. It had also acquired credit card business MBNA and launched a wealth management arm to help diversify. 

One Killer Stock For The Cybersecurity Surge

Cybersecurity is surging, with experts predicting that the cybersecurity market will reach US$366 billion by 2028more than double what it is today!

And with that kind of growth, this North American company stands to be the biggest winner.

Because their patented “self-repairing” technology is changing the cybersecurity landscape as we know it…

We think it has the potential to become the next famous tech success story. In fact, we think it could become as big… or even BIGGER than Shopify.

Click here to see how you can uncover the name of this North American stock that’s taking over Silicon Valley, one device at a time…

Despite these efforts, the bank’s been hamstrung by low-interest rates.

Lloyds share price headwinds 

The bank’s basic business model’s relatively straightforward. These institutions take money from clients or depositors, pay them a rate of interest, and then loan the money out at a higher interest rate. The gap between the interest rate paid to depositors and received from borrowers is known as the interest rate spread. 

Banks only have a limited level of flexibility when it comes to setting interest rates. The Bank of England sets the interest rate for the whole country, and lenders like Lloyds have to base their rates on this benchmark. 

As interest rates have languished, the Lloyds share price has struggled to move higher. The group’s interest rate spread has remained relatively constant over the past decade, but its balance sheet has shrunk as the enterprise has exited non-core operations. As such, the company’s earning the same return but on a lower level of assets. 

If interest rates rise, Lloyds’ interest rate spread should increase. This should help boost profit margins, reversing a decade-long trend. 

The market estimates that the Bank of England will begin to increase interest rates next year. Only a modest hike is expected, but it is something. This will allow Lloyds to increase the rate it charges borrowers and hopefully improve its profit margins.

If the bank can improve its profit margins, the Lloyds share price should begin to reflect its improving outlook.

Risks ahead  

Unfortunately, this isn’t guaranteed. The UK banking market’s highly competitive. Even if the Bank of England hikes interest rates, intense competition in the market may prevent lenders from increasing costs for borrowers. This could hold back the performance of the equity. 

Other challenges the group has faced since the financial crisis include higher costs and increased regulation. Neither of these headwinds will reverse if interest rates start to rise. Therefore, the lender’s profit margins may remain under pressure. 

Despite these risks, I think the outlook for the Lloyds share price is improving. The economic fallout of the coronavirus crisis was nowhere near as bad as some analysts were expecting. As a result, the bank has exited the crisis in a relatively strong position. This should enable the enterprise to capitalise on the economic recovery this year and next. 

With this being the case, I’d buy the stock for my portfolio as an economic recovery play. 

Inflation Is Coming: 3 Shares To Try And Hedge Against Rising Prices

Make no mistake… inflation is coming.

Some people are running scared, but there’s one thing we believe we should avoid doing at all costs when inflation hits… and that’s doing nothing.

Money that just sits in the bank can often lose value each and every year. But to savvy savers and investors, where to consider putting their money is the million-dollar question.

That’s why we’ve put together a brand-new special report that uncovers 3 of our top UK and US share ideas to try and best hedge against inflation…

…because no matter what the economy is doing, a savvy investor will want their money working for them, inflation or not!

Best of all, we’re giving this report away completely FREE today!

Simply click here, enter your email address, and we’ll send it to you right away.

Rupert Hargreaves has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

Our 6 'Best Buys Now' Shares

Renowned stock-picker Mark Rogers and his analyst team at The Motley Fool UK have named 6 shares that they believe UK investors should consider buying NOW.

So if you’re looking for more stock ideas to try and best position your portfolio today, then it might be a good day for you. Because we're offering a full 33% off your first year of membership to our flagship share-tipping service, backed by our 'no quibbles' 30-day subscription fee refund guarantee.

Simply click below to discover how you can take advantage of this.