Final week, analysts at Citigroup (NYSE:C) lowered their forecast for Lloyds Banking Group (LSE:LLOY) shares. From beforehand having it at 68p, it was reviewed and lowered to 60p. Provided that the present Lloyds share price is 57p, it signifies principally no significant potential within the coming 12 months. But does this make sense?

Taking a look at forecasts

The Impartial ranking that the research staff has placed on the inventory means it doesn’t see a lot alternative within the coming 12 months. Nevertheless, I ought to observe that forecasts from banks and brokers aren’t at all times right. As such, I must take this with a pinch of salt.

Of the present dealer forecasts that I’m seeing, one has the inventory with a Promote ranking, six as Impartial and 10 as Purchase. Subsequently, the stability from these within the trade remains to be weighted in direction of shopping for the inventory for additional potential positive factors. But the downward revision from Citigroup is in focus as a result of it’s recent off the presses!

In the intervening time I can’t see any detailed commentary as to why the choice was made, however would anticipate to see one thing come by means of within the subsequent few weeks. This may possible catch traders’ consideration.

A possible concern

One motive why the view of the financial institution might need moderated is predicated on the affect of falling rates of interest. The Financial institution of England lower the bottom charge on the August assembly by 0.25%. This was the primary lower for the reason that begin of the pandemic again in 2020.

The view is that a minimum of yet another lower is coming earlier than the top of the 12 months. The lower acts to cut back the online curiosity margin for Lloyds. Put one other manner, it reduces the revenue that it will probably make through the distinction within the charge charged on loans versus what it pays out on deposit.

The anticipation of the autumn has already been famous. The half-year outcomes confirmed web curiosity revenue down 10% versus H1 2023, however the administration staff stated this was “as expected”.

Taking a step again

I’m not too frightened concerning the affect right here. Most individuals are conscious that rates of interest will fall, so if traders had been genuinely frightened, I believe the Lloyds share price would have already got dropped considerably.

Additional, let’s not overlook that decrease rates of interest really assist to spice up financial exercise. Cheaper mortgage charges ought to see demand spike, in addition to greater spending on credit score and debit playing cards. This could all contribute to greater income for Lloyds.

On a separate observe, Lloyds shares at 57p don’t look overvalued. The price-to-earnings ratio is just 7.42. That is nicely under my honest benchmark degree of 10. So from this attitude, I wouldn’t say that 60p is a ceiling. I have already got sufficient publicity to the banking sector, but when I didn’t, I’d look to purchase Lloyds shares.