As investors look ahead to 2026, the FTSE 100 banking sector will be appealing to investors.
After all, 2025 has been another incredible year for these large-cap banks.
The challenge is working out which name genuinely stands out. For me, this means looking at the data, notably forward-looking valuation, income, and profitability. They all need to be weighed together.
Barclays has the lowest P/E
Starting with forward valuation, Barclays takes an early lead. Its rolling one-year forward price-to-earnings (P/E) of 8.6 is the lowest of the group, ahead of NatWest at 8.9 and Lloyds at 9.8.
This metric doesn’t tell us a huge amount on its own. It could mean the market is least excited by Barclays’s growth prospects or underwhelmed by its dividend yield.
However, when growth is factored in, Lloyds looks stronger, with forecast EPS growth of 29.6%, comfortably ahead of Barclays’ 22.6% and NatWest’s 12%. This gives Lloyds the lowest P/E-to-growth (PEG) ratio at just 0.4, arguably the best growth-adjusted valuation on offer.
The caveat here is that this isn’t a perfect PEG ratio given we lack earnings growth data for the medium term. Nonetheless, this helps us build a better picture.
NatWest has the biggest yield
For income investors, NatWest clearly wins. Its forward dividend yield of 5.5% is the highest among the five banks, ahead of HSBC (LSE:HSBA) at 5% and Lloyds at 4.4%.
Barclays and Standard Chartered lag some distance behind, with yields of 2.3% and 2.2% respectively. If dividend income is the priority going into 2026, NatWest stands out.
On balance-sheet valuation, Barclays again comes out on top. Its price-to-book ratio of 0.83 is the lowest in the group, implying the market values it at a meaningful discount to its net assets. Lloyds (1.20), NatWest (1.31), Standard Chartered (1.04), and HSBC (1.35) all trade closer to, or above, book value.
Profitability goes to HSBC
Profitability, however, tilts the argument towards HSBC and NatWest. HSBC delivers the strongest return on capital. NatWest is close behind, particularly on operating margin, where it leads with 39.6%, narrowly ahead of HSBC’s 39.5%.
My pick
HSBC performs pretty well across most metrics. At 10.1 times earnings, it’s not expensive, and in the long term, provides exposure to fast-growing markets. Lloyds, Barclays, and NatWest, are currently more UK focused.
It’s also the second-largest dividend payer of the group and the best performer by profitability metrics. Put all these factors together, and I feel it could be the best option for 2026.
I’d also add that valuation is particularly important right now. All five of these banks have near-perfect momentum scores — in other words the share price has consistently been moving in the right direction.
Sometimes there’s good reason for this, but it’s also worth remembering that these companies are banks. They’re not leading the AI revolution, they’re moving money. And that puts a cap on how fast they can grow earnings and, corresponding, how high these stocks can fly.
I still believe all these banks are worth considering for the long run, but I’d argue HSBC has the greatest margin of safety. The obligatory risk? Well, it’s got plenty of exposure to China, and geopolitical unrest could put the stock under pressure.
