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Lloyds Bank (LON: LLOY) share prices have struggled in 2022 as concerns about the UK economy continue. The stock fell about 8% and struggled to retest its highest levels of the year. Nevertheless, the company outperformed the rest Banks The closely watched KBE ETF fell more than 20%. Goldman Sachs, Morgan Stanley and Bank of America Shares fell more than 20% in 2022.
UK recession fears
Lloyds’ share price outperformed the wider banking sector due to its reliance on interest income. Unlike banks such as Barclays and Morgan Stanley, Lloyds does not have a large exposure to investment banking. Investment banking had its worst year in decades as the number of deals fell globally.
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The trend came as interest rates pushed the cost of borrowing to their highest levels in decades. And regulators, especially in the US, put the brakes on the industry. For example, the FTC sued Microsoft to stop its acquisition of Activision Blizzard.
So, to some extent, Lloyds Bank benefited from rising interest rates as the Bank of England (BoE) offered several hikes. Report. Lloyds and other banks make more money when interest rates rise.
2023 will be a mixed year for Lloyds. On the one hand, the BoE has indicated that it will keep interest rates high for a while in an effort to reduce inflation. The official cash rate stands at 3.5%, the highest level in more than a decade.
On the other hand, higher interest rates risk pushing the UK economy into recession, leading to more defaults. In fact, in the third quarter, the company posted a pre-tax profit of $1.74 billion. This weak performance was due to a provision of bad loans of £688 million.
These debt provisions could increase in 2023 if the UK slips into recession. The question is whether the interest income will help cover the bad loans.
Will Lloyds stock price rise in 2023?
Despite its best performance in 2022, Lloyds has been a perennial underperformer as the UK lost its place in global finance. The stock is currently well below the all-time high of 546p reached in 1998.
Lloyds underperformed following a government bailout after the 2008/9 global financial crisis. This is 86% lower than the peak in 2008.
Looking at its business, there is no major catalyst for 2023. Besides, its exposure to the housing sector will hit it again as prices slow. Hence, stocks are likely to remain under pressure in 2023. Key support and resistance levels to watch in 2023 will be 38.2p and 56p, the lowest and highest points in 2022.
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