The Barclays (LSE: BARC) share price had a rip-roaring 2025, climbing 77% over the year. But it was pipped at the post by Lloyds Banking Group (LSE: LLOY), which surged 79%. Can their eye-popping run continue into the New Year?
All the big FTSE 100 banks have benefitted from higher interest rates, which boosted their net interest margins, the gap between what they pay savers and charge borrowers.
FTSE 100 racing demons
However, with the Bank of England and US Federal Reserve cutting interest rates again in December, and more reductions anticipated in 2026, margins may now come under pressure. I expect a tougher year ahead for both Barclays and Lloyds. But which looks the better bet for the year ahead?
Barclays has travelled further and faster than Lloyds over two years. Its shares are up a jaw-dropping 205% over that timescale, almost double Lloyds’ 104% rise. It helped that Barclays dodged the motor finance scandal that hit Lloyds via its Black Horse division. But I wonder if Barclays will find it harder to keep up that blistering pace.
The stocks are no longer the giveaways they were in 2023, when I bought Lloyds. At the time, both traded on a price-to-earnings (P/E) ratio of six or seven. Today, Barclays has a P/E of 13, while Lloyds is higher at 15.4. Neither looks excessively expensive, but neither screams bargain either.
On a price-to-book basis, Barclays again looks better value, at around 0.85, compared with Lloyds nearer 1.25. Valuations suggest Barclays may have slightly more scope for further gains, although that’s not an iron certainty.
One key measure analysts watch closely is return on tangible equity (RoTE). Lloyds is forecast to generate a RoTE comfortably above 15% across 2026, boosted by its focused UK retail banking model and structural hedge that supports interest income as rates move. Barclays has a slightly lower expected RoTE at just under 13%. That’s still solid, and supported by a more diversified business that includes US investment banking. That broader mix can add volatility, but offers potential for a higher price if markets do well.
Stock forecasts
So what do the experts say? For Barclays, consensus analysts produce a one-year share price target of just under 474p. That’s fractionally below where the shares trade today. For Lloyds, the target sits around 101p, roughly 2.6% higher. In both cases, it’s clear that growth expectations have dramatically cooled after such a strong run.
Income seekers should note that Barclays offers the lower yield, forecast at about 1.94%. However, management prefers share buybacks as its main way of returning cash, and is expected to be generous. Lloyds is forecast to yield around 3.7%, which suits me, as I prefer to see big fat dividends landing directly in my account. It’s a personal thing.
Overall in 2026 ,Lloyds may just sneak it on higher income and steadier returns, but Barclays’ valuation and diversified model mean it could still surprise. Either way, one thing is certain. Long-term patience will matter more than short-term fireworks. With that in mind, both banks are well worth considering today.
