FTSE 100-listed Lloyds Banking Group (LSE:LLOY) appears to be like like one of many best bargains on the London Inventory Change. At 41.8p per share, it provides distinctive all-round worth, primarily based on dealer forecasts.

For 2024, Lloyds shares commerce on a price-to-earnings (P/E) ratio of 6.1 occasions. That is properly beneath the Footsie common of 11 occasions.

In the meantime, a ahead dividend yield of seven.6% is virtually double the common of three.9% for FTSE 100 shares.

So why am I not the Black Horse Financial institution? It’s one in every of Britain’s main retail banks and has a big and constant buyer base. And now may very well be a superb time to purchase its shares because the housing market exhibits early indicators of turning the nook.

But regardless of this, Lloyds’ share worth has slumped 22% in the course of the previous 12 months. I believe it might proceed falling in worth. Listed below are simply three explanation why.

1. Price cuts don’t occur

Britain’s banks have gotten off to a stinker in 2024 as hopes of imminent rate of interest cuts have shrunk. Information that inflation sped up in January has tempered expectations of rate of interest cuts within the spring.

Worth rises might stay stubbornly excessive too amid new Brexit commerce guidelines and if battle within the Center East intensifies, affecting delivery routes and pushing up crude costs.

On the one hand, increased rates of interest are good for banks as they increase web curiosity margins (NIMs). These are the distinction between the curiosity banks cost debtors and supply savers, and are a key gauge of profitability.

However in present intervals of financial turmoil they are often counter-productive by sending mortgage impairments by way of the roof. Lloyds had already racked up dangerous loans of £2.4bn between January 2022 and September 2023.

2. Mortgage arrears surge

Increased-than-normal rates of interest, mixed with the weak state of the UK economic system, additionally imply that mortgage arrears and property repossessions might maintain rising.

That is regarding for Lloyds given its place as market chief, and will weigh additional on its share worth (the financial institution has a 19% share of the house loans market).

Information from UK Finance final week underlines the hazard the financial institution finds itself in. This confirmed the variety of owners in mortgage arrears rose 7% between the third and fourth quarters of 2023.

In higher information, the variety of house owner property repossessions dropped quarter on quarter. However this was offset by a rise within the amount of buy-to-let seizures.

3. Rising competitors

The hazard to Lloyds’ margins have been below strain as challenger and digital banks, together with constructing societies, battle to supply probably the most enticing merchandise. This has seen a surge within the variety of clients flocking to them from conventional retail banks.

The combat for Lloyds and its established friends is ready to worsen too, additional impacting its capability to develop revenues within the mature UK market.

Funds specialist Ayden and mortgage supplier Perenna each secured banking licences to commerce right here late final 12 months. And Revolut’s long-running wrestle to obtain one may very well be seismic for the trade if it will definitely proves profitable.

These are just some of the dangers to Lloyds and its share worth in 2024 and past. Whereas it’s low cost, I’d relatively discover different FTSE 100 shares to spend money on as we speak.