March was a tough month for the NatWest (LSE: NWG) share price, plunging more than 15%. Barclays (LSE: BARC) did just as badly and Lloyds Banking Group (LSE: LLOY) wasn’t far behind.
There’s a positive though. All three are cheaper as a result, and yield more. Time to consider buying them?
Last month was tough for the FTSE 100 as a whole. The UK’s blue-chip index fell into correction territory, defined as a drop of more than 10%. There’s no way banks were going to escape the turmoil.
NatWest and Lloyds are heavily exposed to the UK, which offers little protection right now. The OECD has warned Britain could be the worst hit major economy. Barclays has a broader international footprint, thanks to its US corporate and investment banking operations, and Middle East expansion plans. That diversification adds excitement, but widens the risks.
Volatile FTSE 100 sector
If the crisis drags on, higher interest rates could squeeze households and businesses, pushing up bad debts. Mortgage costs may rise too, hitting demand and slowing activity across the housing market.
There’s a positive angle too. All three have benefited from higher interest rates in recent years, which boosted net interest margins, the gap between what they pay savers and charge borrowers.
That was expected to fade as inflation dropped towards 2%, allowing the Bank of England to cut base rates. This seems unlikely now. Rising oil and gas prices could push inflation back towards 4%, delaying cuts and extending that margin boost.
There’s another advantage. The recent sell-off has made all three banks cheaper on a price-to-earnings basis. Barclays trades on just 9.1 times earnings, well below the FTSE 100 average of around 17. NatWest looks even cheaper on 7.9, while Lloyds is pricier at 13.3.
Dividend yields have climbed as share prices have fallen. Barclays has a trailing dividend yield of 2.25%. That’s the lowest of the three, although it prefers to return cash via share buybacks. NatWest offers a meaty 6% yield, while the trailing Lloyds’ yield has crept back above 4%.
Low P/Es, high yields
Forecasts suggest more growth to come. NatWest’s yield is tipped to hit 6.57% in 2026 and then climb to 7.39% in 2027. Lloyds is expected to yield 4.7% and 5.56% respectively. Even Barclays is forecast to pay income of 3.75% in 2026, rising to 4.51% in 2027. These aren’t guaranteed and could be cut if the crisis intensifies.
The share price forecasts are even more eye-catching. Analysts see Barclays hitting 539p within a year, a potential gain of more than 40%. NatWest has a target of 738p, up almost 37%. Lloyds is forecast to reach just over 118p, a rise of around 31%.
These are striking numbers, but they’re only forecasts. Also, most of them are likely to have been made before the Iran conflict, so they don’t reflect today’s share price drops, or increased risks.
Personally, I think all three banks look terrific value and worth considering with a long-term view. Buying today takes nerve though. A sensible approach might be to drip feed money in over several weeks. If they fall further, consider buying more.
