Lloyds‘ (LSE:LLOY) shares have been among the most rewarding stories on the FTSE 100 in recent years. As interest rates climbed sharply from 2022, the bank’s net interest margins expanded dramatically. And the share price followed, surging nearly 80% between 2023 and the start of 2026.
But since then, the stock’s been hovering stubbornly around the £1 mark. So is the rally over? Or is it about to start back up again?
Is Lloyds still a good investment?
Looking at the bank’s latest results, there are a lot of encouraging figures that point towards a business in excellent health. During the first quarter of 2026, pre-tax profits surged 38% year-on-year to £1.63bn, driven by an 8% rise in net interest income to £3.49bn and a 12% jump in other income to £1.27bn.
At the same time, operating costs actually fell 2%, reflecting strong cost discipline from management.
These numbers are made all the more impressive by the fact they followed a genuinely strong 2025 when average interest rates were higher. And even more so following management’s upgraded outlook for 2026 targeting net interest income of around £14.9bn and a return on tangible equity in excess of 16%.
Pairing this with the ‘higher for longer’ UK interest rate environment, it isn’t surprising to see most institutional analysts remaining fairly bullish, with an average share price target of 123p – roughly 17% higher than where the stock trades today.
If those projections prove accurate, that means a £1,000 investment today could turn into £1,170 by this time next year. That’s not bad considering Lloyds is a mature ‘boring’ banking giant. So what’s the catch?
Where’s the risk?
The most significant cloud hanging over Lloyds’ shares remains the motor finance commission scandal. The Financial Conduct Authority’s industry-wide redress scheme is still working through a number of uncertainties, including response rates, operational costs, and ongoing litigation.
While no additional provisions were added during the first quarter, management’s language was fairly explicit that the final cost remains unclear. This isn’t a new risk, but it’s an unresolved one. Until a final figure’s settled, a question mark will continue to hang over the business.
There is also a macroeconomic dimension worth flagging. Lloyds’ own base case assumptions now include a delayed Bank of England rate cut, with no reduction expected until 2027.
While higher rates can be beneficial for banks, rising unemployment and subdued GDP growth could ultimately offset any potential benefits. And a sharp deterioration in UK consumer credit quality could trigger a spike in credit impairment charges – a key risk I’m watching carefully.
The bottom line
Lloyds is a fundamentally strong business trading at a compelling valuation, with profit growth accelerating, a generous dividend, and a majority-bullish analyst consensus.
The motor finance overhang is real, but the market has known about it for years. And with the redress scheme now moving towards resolution, much of the worst-case scenario looks to already be priced in.
For growth investors like me, Lloyds’ shares likely aren’t a great fit. But for patient income investors, this bank stock could still be an interesting FTSE 100 opportunity to explore today.
Should you invest £5,000 in Lloyds Banking Group Plc right now?
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Zaven Boyrazian does not hold any positions in the companies mentioned.
