After a disappointing begin to the summer time, Lloyds Banking Group (LSE:LLOY) shares revved up once more in July to four-and-a-half-year highs above 61p.

The Black Horse Financial institution rose 8% over the course of the month, boosted by a broader rise within the FTSE 100 and a better-than-expected set of interim outcomes.

But it surely’s reversed throughout early August’s inventory market washout. Does this symbolize a chance for me to seize a discount?

I really feel the reply isn’t any. I’m not tempted to dip my toe in, despite the fact that the share price seems to be grime low cost. It trades on a ahead price-to-earnings (P/E) ratio of 9.1 occasions, making it one of many Footsie’s least expensive shares on this metric.

It additionally carries a 5.5% dividend yield for this yr, far above the index common of three.6%.

From a long-term perspective, I nonetheless suppose the financial institution has the makings of a possible investor lure. Listed here are three explanation why I’m avoiding its shares proper now.

1. Falling NIMs

Falling rates of interest might considerably therapeutic massage mortgage progress at retail banks. It will additionally seemingly scale back the variety of unhealthy loans that roll in.

Nevertheless, this could additionally restrict the income that the likes of Lloyds make on their lending actions. Web curiosity margins (NIMs) have been falling throughout the sector and look set to proceed dropping if — as anticipated — the Financial institution of England retains reducing rates of interest.

The truth is, the central financial institution could also be compelled to slash extra sharply than anticipated if the UK financial system struggles. This could possibly be paying homage to the 2010s when banks struggled to develop income following the monetary disaster.

2. Mortgage arrears

Enhancing circumstances within the UK’s housing market have given banks one thing to cheer in current months. Newest information from constructing society Nationwide, in truth, confirmed common house price progress hit 18-month highs in July.

That is excellent news for Lloyds. It’s Britain’s greatest house mortgage supplier and controls round a fifth of the market.

Nevertheless, issues aren’t all rosy for the mortgage market mammoth. This massive publicity additionally leaves it vastly susceptible to additional vital mortgage impairments as householders transfer off low fixed-rate merchandise and onto dearer ones.

There have been 96,580 home-owner mortgages in arrears within the first quarter, newest UK Finance information reveals. That was up 26% from the identical 2023 interval and is a troubling omen for the nation’s main lenders.

3. Rising competitors

Margin pressures and mortgage defaults have been common threats to Lloyds down the years. However in contrast to in earlier a long time, the banking sector is going through an unprecedented stage of disruption from challenger and digital banks, placing revenues underneath even additional pressure.

Revolut’s receipt of a UK banking licence in July might alone present an enormous problem for the incumbent banks. It has constructed a buyer base of 9m folks in lower than a decade.

Lloyds nonetheless has vital model energy. However the market-leading buyer scores of latest gamers like Starling and Monzo suggests that top avenue operators like Lloyds are in a bloody battle to retain debtors and savers and recruit new ones.

All issues thought-about, I’m joyful to depart Lloyds shares on the shelf. I’d quite search for different low cost UK shares to purchase.