Lloyds‘ (LSE:LLOY) share price is on a terrific run so far this year. The banking giant’s seen its valuation surge by more than 35% since the start of the year as economic conditions in the UK improve. And shares have subsequently recovered to pre-pandemic levels. But the big question on everyone’s mind is whether Lloyds can maintain this momentum as we approach 2025.
What do the forecasts predict?
With strong ties to the British economy, Lloyds has often been used as a proxy to measure the health and performance of Britain’s economic conditions. And it’s no secret that things have been getting better of late. Inflation’s largely back under control, and the Bank of England has started its rate-cutting programme, relieving pressure from households and businesses alike.
The positive impact from this recovery’s already started to emerge in Lloyds, with loans and advances to customers rising by £2.7bn, reaching £452.4bn over the first six months of 2024. Meanwhile, customer deposits are still rising despite more competitive rates offered by other saving platforms.
As such, banking net interest margins remain on track to surpass 2.9% by the end of this year – some of the highest in the industry.
Needless to say, this is all rather positive. So it’s no surprise that analyst forecasts for the Lloyds share price are looking bullish. Some have even predicted the stock to rise to as high as 73p within the next 12 months. Compared to the 57p shares are currently trading at, this indicates a potential 28% upside.
What could go wrong?
As exciting as the prospect of another double-digit return is, this success is far from guaranteed. Not every City analyst is convinced there is more value to be unlocked now that interest rates are falling, predicting the stock price will remain flat at 55p this time next year.
The logic here’s sound. Lower rates put pressure on the net interest margin, reducing Lloyds’ profitability if it can’t equally reduce the interest rates offered on its savings accounts. Therefore, to maintain growth, the bank will have to increase the volume of loans issued to individuals and businesses alike.
Personally, I’m cautiously optimistic here, at least for the short term. A lot of businesses are delaying projects into 2025, awaiting better rates. And that should be a robust catalyst for Lloyds to ramp up its lending activities next year. However, the big question mark surrounding this business right now is what’s going on with the Financial Conduct Authority investigation?
As a quick reminder, Lloyds, along with other banks, have been accused of foul play relating to commissions on motor finance agreements. If found liable, the financial penalty could easily offset gains made through increased volumes, making hitting the 73p share price target quite challenging.
