Investing in UK banks isn’t always simple, and 2025 is no exception.
With interest rates settling, inflation slowing but still sticky, and ongoing geopolitical tensions, the sector faces both opportunities and obstacles. Five names dominate the conversation, Natwest, Lloyds, Metro Bank, Barclays, and HSBC. Each offers a different story and risk profile. But who truly offers the best value for investors willing to dive in?
NatWest
NatWest doesn’t shout for attention. It’s not flashy, doesn’t have an investment bank, and it’s not chasing risky growth overseas. Instead, it keeps to the basics, solid UK retail and commercial banking.
With profits up 36% in Q1 2025 and a healthy net interest margin increase, NatWest has quietly improved its fundamentals. It’s also raised its dividend payout, now targeting a roughly 50% payout ratio, signalling confidence in steady cash flow.
NatWest’s focus on the UK market means it benefits from stable domestic lending growth and cost control. Its recent acquisition of Sainsbury’s Bank adds scale and customer diversity without piling on risk. For investors wary of flashy stories and headline-grabbing moves, NatWest offers a sensible, steady value play.
For years, government ownership hung over NatWest’s share price like a cloud, making investors wary of when the next sell-off might hit and what it would do to valuation. That uncertainty has finally lifted. Since the government fully exited, NatWest’s shares have surged over 30% in 2025, briefly reaching 530p before settling back a bit in June
Lloyds Banking Group
Lloyds has been one of 2025’s standout performers, with shares climbing nearly 40% year-to-date, comfortably beating the FTSE 100. It sports a dividend yield north of 5%, which looks generous in today’s market.
The bank’s capital return programme is aggressive, with billions going back to shareholders through buybacks and dividends. Yet, Lloyds carries a notable concern, an ongoing FCA investigation into its motor finance business. The regulator’s scrutiny could lead to a hefty fine or stricter oversight, which would hit profitability.
Valuation-wise, Lloyds trades at about 0.7 times price-to-book, which suggests some risk is priced in but also leaves room for upside if the investigation’s impact is limited. Its UK-focused lending book is both a strength, offering familiarity and scale, and a risk, given the sluggish UK economic backdrop.
Metro Bank
Metro Bank feels like a tale of what might have been. Once a rising challenger with rapid deposit growth, it now trades around £1.30, a fraction of its previous highs. The shares reflect a painful history of regulatory issues, loss of customer confidence, and profit warnings.
Metro’s troubles began with a 2019 accounting blunder that miscalculated risk-weighted assets by £900 million, triggering a capital crisis and regulatory scrutiny. What had made Metro distinctive – its seven-day banking, American-style customer service, and physical store expansion – suddenly looked like expensive overhead rather than competitive advantage. Customer deposits, once growing at breakneck speed, began flowing out as confidence evaporated.
Recent takeover interest from private equity firm Pollen Street Capital has emerged, though no deal is confirmed. The current market value of around £750 million is still a stark reminder of how far Metro has fallen from its £3.5 billion peak market cap. Metro’s profits remain modest, and deposit balances have shrunk, highlighting ongoing challenges.
The turnaround case hinges on whether new management can stabilise the deposit base, cut costs without losing Metro’s service edge, and rebuild regulatory trust. Key metrics to watch include customer acquisition rates, the cost-to-income ratio, and whether deposits start growing again rather than just bleeding more slowly.
For speculative investors, Metro’s current valuation could represent a bargain, if the turnaround sticks. But this is a bet on management execution and regulatory relief rather than on fundamentals. It’s a shaky foundation, suited for those who don’t mind volatility and have patience for a multi-year recovery story that may never materialise.
Barclays
Barclays stands out as one of the cheapest big UK banks, trading at a price-to-book near 0.6 and a forward P/E under 8. It offers a modest dividend yield around 2.6% and continues to return capital to shareholders via buybacks.
Its diversified business model spans retail banking, credit cards, and investment banking, which could provide some cushion if one segment falters. Yet, the shares have lacked momentum, held back by lingering reputational issues from past scandals and a cautious investor base.
Barclays feels like a reliable but uninspiring pick, cheap, yes, but not without risk. The question is whether new growth drivers or strategic moves will emerge to unlock value. Until then, it may remain stuck in “value trap” territory for some.
HSBC
HSBC has taken a different path, pivoting aggressively toward growth markets in Asia and the Middle East while scaling back in Western investment banking. Its 5.7% dividend yield and $5 billion share buyback programme highlight management’s commitment to shareholder returns.
However, the bank’s recent Q1 2025 pre-tax profits plunged 25% year-on-year, reflecting challenges including geopolitical tensions, interest rate pressures, and economic headwinds in key markets. HSBC’s global footprint means it’s more exposed to international risks than its UK peers.
Investors attracted to HSBC’s yield and growth story must accept this volatility. The valuation seems to price in these uncertainties, but the risks are real.
Which Bank Offers the Best Value?
If you want steady income and can tolerate regulatory and geopolitical risks, Lloyds and HSBC remain compelling. Lloyds’ UK focus offers stability tempered by investigation risks, while HSBC bets on growth markets but comes with volatility.
For deep-value seekers willing to stomach uncertainty, Barclays and Metro Bank stand out. Barclays offers diversification and rock-bottom valuations, though it needs fresh catalysts to excite investors. Metro Bank is a turnaround story still in progress, a high-risk, potentially high-reward wager.
The Bottom Line
Value investing isn’t just about low multiples or high dividends. It’s about balancing price with risk, management quality, and market context. UK banks in 2025 aren’t all equally undervalued or promising. What looks like a bargain to one investor might be a minefield to another.
The best value bank share depends on your appetite for risk, belief in management, and investment timeframe. Take the time to look beyond headline numbers, the devil is always in the detail.