The coronavirus outbreak has hit many financial stocks with Barclays’ share price down by more than 40 per cent this year.
One of the key challenges facing the industry is a rise in bad loans as businesses fail and unemployment rises.
In its first-half results, Barclays set aside some £3.7 billion in provisions, as the board expected soaring unemployment and corporate bankruptcies to result in fewer of its loans being repaid. The bank is expected to update on third-quarter trading later this week.
Nicholas Hyett, an equity analyst at financial services firm Hargreaves Lansdown, said: “We don’t think the global economic picture has improved much since [the first half] and expect more provisions this quarter.
“The other major headwind is falling interest rates and particularly the threat of rates going negative.
“With interest rates on savings accounts already at rock bottom, but lower central bank rates pushing down the rate banks can charge to borrowers, the bank’s ‘net interest margin’ (the difference between what the bank pays for funding and what it earns on loans) is set for a squeeze.”
He added: “The good news is that Barclays’ sizeable investment banking business is less reliant on interest income. Volatile financial markets are good news for investment banks, since they mean more trading and hedging activity.
“The scary days of March are now behind us, but volatility has remained high in the third quarter and that should help the bank’s trading desks.”