Barclays 2Q26: Building on steady operating momentum

• Strong 2Q26 performance despite sequential moderation. Revenue rose 16% y/y and profit before impairment increased strongly as revenue growth outpaced costs.
• FY26 guidance was modestly upgraded. Management now expects £31.5bn of income and >£13.7bn of NII excluding Investment Bank and Head Office, while the structural hedge continues to provide good NII visibility.
• Credit fundamentals remain sound. Stage 3 exposure and overall impairment coverage remained stable, while 2Q26 loan-loss rate remained within Barclays's through-the-cycle range as well.
• Liquidity and capital buffers remain sufficient. Its LCR was 158%, NSFR 136%, and CET1 14.3% (14.0% pro-forma for the announced buyback). CET1 is expected to remain steady around the top end of management’s 13% - 14% target range.
• Barclays’s bonds are generally fairly priced. Yields are fairly similar to other bonds issued by UK or Europe-based banks, suggesting no clear mispricing in their bonds across SGD, USD, and AUD.

Barclays plc (‘Barclays’) recently released its 2Q26 results, once again delivering steady growth as expected. We review its 2Q26 performance in greater detail, discuss its outlook, and conclude with our top recommendations.

Building on steady operating momentum in 2Q26

Barclays delivered record quarterly revenues again in 2Q26, growing +16% y/y to £8,338m (Chart 1). This comprised £3,921m in net interest income (NII) (+12%) and £4,417m in net fee, commission, and other income (NFCI) (+20%).

Excluding Investment Bank and Head Office*, NII increased +10% y/y to £3,361m (Table 1). The improvement was supported by a combination of balance sheet growth and wider margins, with average customer assets increasing +4% y/y and net interest margins (NIM) rising from 4.48% in 2Q25 to 4.74% in 2Q26. Management again attributed part of the improvement to higher structural hedge income.

(*NII / NIM figures excluding Investment Bank and Head Office are more representative of a typical bank’s loan / deposit book.)

However, sequential NII momentum was weaker, with NII excluding IB and Head Office declining -1% q/q from £3,407m in 1Q26. Barclays UK – its largest interest-sensitive segment by customer assets – faced higher deposit costs amid a more competitive ISA (Individual Savings Account) season. Together with mortgage refinancing pressures, this caused Barclays UK NIM to decline 4 bps q/q to 3.68% and Barclays Group NIM to fall 9 bps to 4.74%, despite continued support from the structural hedge.

Meanwhile, strong y/y growth in NFCI also came with weak sequential momentum, as NFCI fell -0.2% q/q. NFCI tends to be driven by the Investment Bank segment (Table 2). Global Markets revenues fell -4% q/q as FICC declined 14%, partly offset by a 13% increase in Equities. Banking fees were broadly stable, declining 1%. The American Airlines disposal gains nonetheless helped offset this typical seasonal moderation.

Chart 1: Barclays delivered record quarterly revenues in 2Q26

Table 1: Net interest income & margin breakdown

Table 2: Investment Bank – Revenue breakdown

Cost management helped support improved profits

Costs increased at a slower pace than revenues, supporting stronger year-on-year operating leverage (Chart 2). Operating expenses increased +7% y/y to £4,518m compared to the +16% y/y increase in revenues. Excluding litigation charges and regulatory levies, operating expenses would have risen +9% y/y, indicating that underlying cost growth remains well-managed. Headline cost-to-income ratio consequently fell from 59% in 2Q25 to 54% in 2Q26, supporting management’s push toward improving efficiencies throughout the group.

Credit impairment charges rose +22% y/y to £571m, lifting the loan-loss rate from 44 bps in 2Q25 to 51 bps in 2Q26, but still within management’s 50 – 60 bps through-the-cycle range (Chart 3). The increase was primarily attributed to Barclays UK, where impairments rose from £79m to £160m and loan-loss rates climbed from 14 bps to 27 bps (but still below the 30 bps through-the-cycle range). Nonetheless, management described underlying credit performance as stable as retail credit cards arrears ticked up only slightly; instead, it noted that the prior-year comparison had benefited from a retail card calibration adjustment. We also note the sharp q/q moderation in Investment Bank impairments – this was expected as the 1Q26 impairment was due to a single name, and was not expected to recur in subsequent quarters.

Profit after tax rose +30% y/y (or +16% q/q) to £2,521m in 2Q26, with return on tangible equity improving to 16.1%. Overall, profit growth remained decent in 2Q26, with increases in revenue coupled with improvements in operating leverage (costs & margins) serving as the two key factors.

Chart 2: Operating leverage improved (lower cost-income ratio)

Chart 3: Credit impairments normalised q/q from 1Q26, but still up y/y from 2Q25

Modest upgrade in guidance, expect steady growth in FY26

We include a summary of management targets in Table 3 below. Broadly, top-line estimates were adjusted upward, while cost-efficiency is expected to improve over the medium term despite potentially some headwinds in FY26 itself.

Barclays’s NII outlook remains anchored by its structural hedge, which helps lock in interest income. Management recently raised its FY26 NII guidance (excluding Investment Bank & Head Office) higher, to above £13.7b (previously: above £13.5b). It has already locked in over 95% of expected hedge income for FY26, giving strong visibility over this year’s NII. Meanwhile, future structural hedge benefits could accrue in 2027 and 2028 with maturing yields of 2.1% and 2.7% respectively, versus management’s assumed reinvestment rates of 3.5%.

Direct changes in BOE policy rates should have modest standalone effects on Barclays’s NII. Barclays estimates that a 25 bps decline in base rates would reduce Year 1 Group NII by only around £20m, with minimal impact thereafter as deposits reprice gradually. The more important channel is whether such policy rate changes move the broader GBP swap curve. Barclays estimates that a 25 bps parallel decline across the relevant swap curves would reduce reduce Group NII by £50m in Year 1, rising to £240m by Year 3, as existing hedges mature and are reinvested at lower rates. We would need to see a sustained repricing of swap rates for Barclays’s NII to be meaningfully affected over the medium to long term.

(Note: Barclays only released downside-sensitivity assumptions; we assume upside sensitivity does not differ too significantly.)

Non-interest income (i.e. NFCI) should also remain supportive. This is implied through management’s upgrade of its FY26 revenue target by £500m (to £31.5b), compared to the upgrade of its FY26 NII target by £200m (to > £13.7b). Management did not provide clarity on what drove the upgrade, though it may partly recognise stronger-than-expected performance already recorded in 2Q26.

Despite projected revenue growth, we also expect costs to rise in 2H26 as Barclays accelerates efficiency initiatives. Management expects FY26 structural cost actions (SCA) to total £600m, including up to £500m in 2H26, higher than the roughly £300m annual run-rate in FY24 and FY25. Furthermore, compensation mix changes, targeted at increasing variable pay (and lowering fixed pay), could add another £150m of costs in 2H26. Near-term operating leverage may therefore stay in the mid to high-50% range despite stronger revenues.

We believe the recent increase in impairments warrants monitoring but does not yet indicate a broad credit cycle deterioration. As mentioned above, 2Q26 loan-loss rates ticked up on both the Group level and for Barclays UK, but remained within their respective through-the-cycle ranges. While management remains calm over these figures, we note that a deterioration in the broader macroeconomic environment could increase the risk of losses moving above this through-cycle range.

Management’s FY26 top-line target of £31.5b implies approximately +8% growth from FY25, though we are mindful of weakening sequential performance observed in 2Q26 relative to 1Q26. Meanwhile, management’s FY26 cost-income projection in the high-50% also marks an improvement from FY25’s 61%, but we are again mindful of higher near-term SCA and recent impairments (1Q26 from MFS, 2Q26 in Barclays UK). We think these FY26 targets remain achievable, but subject to downside risks depending on the macroeconomic environment. Over the medium to long-term, however, it remains well-placed to deliver steady growth over time, especially as restructuring expenditures begin to deliver their ‘100% ROI’ in FY27 and after.

Table 3: Management targets (changes are in blue)

Strong liquidity and funding profile

Liquidity remains one of Barclays’ clearest credit strengths despite the normalisation in its liquidity coverage ratio (LCR). It reported a LCR of 158% at end-June 2026, lower than 170% at end-2025 but still well above the 100% requirement. Within this LCR, high-quality liquid assets (HQLA) held steady at £321b, while net stress outflows increased from £190b to £204b. Management did not disclose precise reasons for this LCR decline, but at least partly attributed this to a new methodology for calculating net stress outflows in June 2025.

(Note: As the LCR is reported based on the average of the last 12 month-end ratios, it is expected that June 2025 change in methodology can still affect June 2026 figures.)

Barclays’s liquidity pool increased by £9b from end-2025, to £347b at end-June 2026. The pool remains unencumbered and readily accessible, with £255b of cash and central-bank deposits, £68b of government bonds (all rated A- or above) and £24b of other liquid securities. More than 99.7% of the relevant cash was placed with major central banks.

Funding is supported by a large deposit base and conservative loan-to-deposit ratio. Its net stable funding ratio (NSFR) of 136% (end-2025: 135%) remains well above regulatory requirements (£172b surplus), while its loan-to-deposit ratio remained stable at 75% (end-2025: 73%). Barclays retains significant funding flexibility from its UK franchise, diversified customer deposits, and access to wholesale markets supported by its strong investment-grade rating.

Stable asset quality with sufficient impairment coverage

Barclays’s asset quality remained stable despite overall balance sheet growth (Table 4). Gross loan exposures grew to £450b at end-June 2026, up from £435b at end-2025. The proportion of Stage 1 to 3 loan exposures remained relatively steady, with Stage 1 exposures still accounting for 91.1% of gross loans, and the share of Stage 2 exposures increasing just modestly from 7.1% to 7.2%.

Impairment coverage remained stable in 2Q26 compared to the previous quarter (Table 5). While we mentioned above that 2Q26 impairment charges rose +22% y/y, we note that gross impairment allowance increased by just +4%, roughly in line with the +3% growth in gross loan exposures. Impairment coverage also remained somewhat steady – this includes Stage 3 impairment coverage at 37.5%, where the sharp increase from 35.7% at end-2025 was primarily due to the single-name MFS charge already reported in 1Q26.

Table 4: Balance sheet grew at single-digit pace

Table 5: Impairment coverage stable – main increase in 1Q26 following MFS impairment

Adequate capital buffers

Barclays’ CET1 ratio is adequate, though the buffer over requirements is not excessive. Reported CET1 was 14.3% at end-June 2026, or 14.0% pro-forma after the announced £1b buyback. This puts CET1 at the top end of management’s 13% - 14% target range, and around 210 bps above the disclosed 12.2% requirement (180 bps pro-forma after buyback). Notably, this buffer appears smaller than other UK-regulated banks (and Deutsche Bank) as Barclays generally has higher requirements than its peers (Chart 4).

(Note: We adopted a conservative estimate for Lloyds and NatWest CET1 requirements, including their bank O-SII buffers.)

Regulatory risk-weighted assets (RWA) inflation remains the primary medium-term headwind for capital. Management expects around £19b - £26b of additional RWAs in 2027, comprising £8b - £15b from Basel 3.1 (January 2027) and £11b from the USCB migration to an internal-ratings-based model in the second half of 2027. Management expects some offset through lower Pillar 2A requirements, but the quantum and timing of that relief remain uncertain. Assuming the higher end of £26b RWA inflation, its indicative CET1 ratio would be closer to 13.3% (or 13.1% after the £1b buyback), still within management target range but with a narrower buffer over regulatory requirements.

Apart from CET1, Barclays’s capital buffers were also comfortable but not excessive. Barclays reported a Tier 1 ratio of 18.0% against a disclosed 14.6% requirement, while its total capital ratio was 20.3% versus a 17.8% requirement. Tier 2 and AT1 capital were integral parts of total capital, with no calls remaining in 2026, and a decent chunk in 2030 or after.

Looking ahead, we reiterate our expectation that its CET1 should hover around current levels in FY26 and FY27 without meaningful improvement. We think Barclays is able to continue generating organic capital through single-digit profit growth, though these benefits would primarily be offset by capital distributions and/or RWA inflation coming in 2027. With CET1 already around the top of management target range, we do not see significant incentives for management to push the ratio even higher.

Chart 4: CET1 buffer is adequate, but slightly lesser than UK / European peers

Bond comparison

To summarise, Barclays delivered another solid quarter, while its credit profile remains resilient as before. We take a look at its SGD, USD, and AUD bonds below.

SGD bonds

Barclays only has perpetuals outstanding (no seniors / Tier 2s), which generally offer higher yields than comparable bonds in this space (Table 6). We note that perpetuals with higher reset spreads could see lower probabilities of non-calls.

• BACR 8.300% Perpetual Corp (SGD) and BACR 7.300% Perpetual Corp (SGD) stand out very clearly for their high reset spreads.
• BACR 5.400% Perpetual Corp (SGD) and BACR 4.650% Perpetual Corp (SGD) have similar reset spreads. The former has a higher yield-to-reset despite a shorter time to reset; the latter has a higher reset spread which could dis-incentivise non-calls. Nonetheless, based on today’s market conditions (which may change in future), Barclays appears incentivised to re-finance both of these perpetuals through re-issuances if required.

Table 6: SGD bond / perpetual comparison (Barclays perps bolded)

USD bonds

Barclays has many bonds outstanding in the USD space, including non-perpetuals (Table 7) and perpetuals (Table 8).

• We find the non-perpetuals fairly priced; they generally offer similar yields compared to similarly-rated (or 1 notch higher) peers.
• The Barclays perpetuals have slightly higher yields compared to peers. They may be of interest to those (i) seeking high levels of coupons, and (ii) who are looking for those with higher reset spreads. Examples include BACR 9.625% Perpetual Corp (USD).

Table 7: USD non-perpetual comparison (Barclays bonds bolded)

Table 8: USD perpetual comparison (Barclays perps bolded)

AUD bonds

Barclays has many bonds outstanding in the AUD space, including non-perpetuals and perpetuals (Table 9).

• We find the non-perpetuals fairly priced; they generally offer similar yields compared to similarly-rated (or 1 notch higher) peers.
• Perpetuals are uncommon in the AUD space. In this limited universe, we note that Barclays perpetuals offer higher yields, spreads, and reset spreads, compared to higher-rated peers (as expected). As before, investors should be mindful of non-call risks, though BACR 8.000% Perpetual Corp (AUD) continues to trade above par, helped by the tightening of spreads since issuance.

Table 9: AUD bond comparison (Barclays bonds bolded)

Declaration: For specific disclosure, at the time of publication of this report, IFPL (via its connected and associated entities) holds positions in BACR 8.300% Perpetual Corp (SGD), BACR 4.650% Perpetual Corp (SGD), STANLN 4.300% Perpetual Corp (SGD), HSBC 5.250% Perpetual Corp (SGD), and STANLN 7.000% Perpetual Corp (USD). The analyst who produced this report holds NIL positions in the abovementioned securities. This research report was prepared with the assistance of artificial intelligence (AI) tools. iFAST Financial Pte Ltd does not rely exclusively on AI for content generation; the content of this report – including all investment theses, ratings, price targets and conclusions – has been independently reviewed and verified by the research analyst(s) to ensure accuracy and professional integrity.