The Lloyds (LSE:LLOY) share price has been on quite the rampage this year, climbing by over 50% since January. The banking giant has been cashing in on the benefits of higher interest rates. And with uncertainty surrounding the motor finance scandal starting to be lifted, investor sentiment’s improved drastically. So much so that a £10,000 investment eight months ago is now worth over £15,000.
So can the banking stock continue to climb even higher from here? And what are the key risks investors need to watch out for?
Bullish sentiment on the rise
Beyond the significant reduction in litigation risk surrounding this business, the bank’s latest results showed encouraging trends of progress. Earnings have continued to climb alongside its overall loan book, leading to steadily improving fundamentals.
Even with the Bank of England slowly cutting interest rates, the group’s hedge portfolio continues to support wider net interest margins. And the bank’s on track to continue enjoying the benefits of higher rates in 2026. Obviously, this won’t last forever. But as rates steadily fall, borrowing activity tends to increase, granting Lloyds the opportunity to offset eventual margin compression with higher lending volumes.
Management seems to be confident of this, considering it’s recently reiterated full-year targets. And we’ve even seen insiders start buying up shares throughout 2025. That’s certainly an encouraging trend. And it’s one that the analyst team at Morgan Stanley expects will continue, given it has recently increased its Lloyds share price target from 95p to 100p.
Assuming this projection’s accurate, that means investing £10,000 today could grow to as much as £12,044 by this time next year.
What could go wrong?
Despite investor sentiment surrounding the British banking sector rising, there are still some notable weak spots. Soft UK economic growth and rising unemployment expose banks like Lloyds to a higher risk of credit impairment charges. If customers are unable to keep up with their debt repayment plans, the quality of Lloyds’ earnings will likely suffer.
It’s also important to note that the story surrounding the motor financing situation isn’t over just yet. The Financial Conduct Authority is still preparing a potential redress scheme where Lloyds could still be on the hook. Combining all this with rising pressure from novel FinTech disruptors, the bank’s upward momentum could start to stall, leaving investors disappointed.
The bottom line
Overall, Lloyds seems to be making the right moves to navigate the current market climate. And with continued efforts to optimise operations, the bank indeed appears to be on track to hit its full-year targets. But with other banks achieving superior profitability, there may be better opportunities for investors to explore within this sector. That’s why I’m not rushing to buy Lloyds shares right now.
