RBC Tips UK Banks for Rate-Driven Gains

RBC Capital Markets has identified NatWest and Metro Bank as top picks for investors looking to profit from higher UK interest rates. According to analyst Benjamin Toms, rate expectations have climbed by roughly a percentage point since the second quarter, with money markets now expecting Bank of England rates to peak just above 5%.

This increase in swap rates is expected to boost pre-tax profits for UK banks by 5.5% in 2028. NatWest is projected to be the biggest winner at 6.6%, followed closely by Lloyds and Barclays. Metro Bank, rated 'outperform' at 170.2p, is seen as a particularly attractive opportunity due to its 'Goldilocks' position.

NatWest has £833 million of treasury assets maturing in the second half of 2026 at a yield of just 0.85%, compared to around 5% on five-year gilts. Reinvesting this cash is expected to support the bank's targets for return on tangible equity, a key profitability measure.