Lloyds (LSE:LLOY) shares have started the New Year where they left off in 2025. The FTSE 100 stock’s risen 2% in value since 1 January, taking total gains over the last year to 77%.
Want to know whether it can keep climbing? I’m not sure it can after last year’s stunning performance. In fact, here are five big threats to Lloyds’ share price in 2026.
1. The economy
Retail banks’ profits are highly sensitive to economic conditions. When people have less money to spend and unemployment rises, the likes of Lloyds can see loan growth crumble and witness sharp rises in loan impairments.
The FTSE bank has so far proved resilient during a tough period for the UK economy. Unfortunately, though, conditions look set to get worse in the near term, putting the bank under renewed pressure.
Analysts at Deutsche Bank, for instance, expect British GDP growth to cool to a meagre 1.4% in 2026.
2. Competition
Lloyds has considerable brand leverage over its rivals. It’s why — despite a congested market and rising dangers from challenger banks — it’s still the number one player across many segments like current accounts and mortgages.
But the bank’s competitive edge is coming under increasing strain as rivals invest in pricing, expand their product ranges, and improve their platforms. Shawbrook has announced plans to list its shares on the London stock market in the near future. Other challengers are expected to launch fresh funding rounds to boost their financial firepower.
This could have significant ramifications for Lloyds’ revenues and margins.
3. Interest rates
At the same time, banks’ net interest margins (NIMs) are being squeezed by Bank of England rate cuts. And more reductions are expected to support the flagging domestic economy as inflationary pressures worsen.
Lloyds has a structural hedge in place that helps limit the impact of interest rate cuts. However, this could have limited impact depending on the scale of future BoE action.
Goldman Sachs reckons interest rates will drop as many as three times this year, to 3%. More cuts could boost demand for Lloyds’ products. But in my view, there’s a good chance this will be a net negative for the bank.
4. Motor finance
Lloyds’ shares had a wobble in September after warning of a “material” provision related to an investigation into the car finance industry. Shortly afterwards, the bank said it had increased provisions by £800m, taking the total to £1.95bn.
This might not be the end of the matter, though. The Financial Conduct Authority’s (FCA) redress scheme for the mis-selling of motor loans is yet to be finalised.
Lloyds has underestimated the potential costs before. A repeat performance could prompt its shares to slide again.
5. Valuation
These risks are considerable, and yet — in my view — don’t seem to be baked into the bank’s valuation.
Lloyds’ share price surge leaves it dealing on a price-to-book (P/B) ratio of 1.5. That’s considerably above the 10-year average of 0.9. It also shows the bank trading at a meaty premium to its asset values.
A high ratio like this leaves it vulnerable to a price correction if the news cycle indeed worsens. Lloyds shares might be worth considering by more risk tolerant investors. But I won’t be buying them for my portfolio.
