Lloyds Banking Group (LSE:LLOY) has loved an electrifying begin to 2025. At 62.5p per share, the FTSE 100 financial institution has risen a whopping 13.4% in worth in only a handful of weeks.

But even accounting for this rise, the Lloyds share price seems dust low cost. No less than on paper, that’s.

Its price-to-earnings (P/E) ratio for this 12 months’s a modest 9 instances. However the Black Horse Financial institution doesn’t simply look low cost based mostly on predicted income. With a price-to-book (P/B) ratio of 0.9, it trades at a slight low cost to the worth of its belongings.

Throw a 5.5% ahead dividend yield into the combination too, and Lloyds shares appear to supply terrific all-round worth.

Nevertheless, it’s vital to do not forget that an inexpensive share price is widespread amongst high-risk firms and/or these with poor progress prospects. With this in thoughts, ought to buyers take into account cut-price Lloyds shares subsequent month?

Progress points

Instances are powerful for the excessive road banks. And issues may get harder as subdued financial circumstances dampen credit score demand amongst customers and companies. On prime of this, the standard lenders’ margins are beneath risk because the Financial institution of England (BoE) gears up to make additional rate of interest cuts and market competitors will increase.

Lloyds’ internet curiosity margin (NIM) — the distinction between what it prices debtors and the curiosity it pays savers — dropped to a wafer-thin 2.94% as of September. It may plummet in 2025 if the BoE’s ratesetters (seemingly) slash rates of interest a number of instances this 12 months.

Lloyds chief government Charlie Nunn has tipped three rate of interest reductions by the tip of December.

Price-cutting will increase

On this setting, retail banks have little room to develop earnings. So in current days, Lloyds has introduced extra department closures to offer the underside line a lift and additional its pivot to digital banking. By subsequent March, the financial institution plans to shutter one other 136 branches to cut back its value base. This can take the variety of Lloyds, Halifax and Financial institution of Scotland branches to 757, down considerably from 2,200 a decade in the past.

As I say, the general mortgage outlook for the financial institution’s fairly gloomy. Nevertheless, indicators of restoration within the housing market are a very good omen for its mortgage unit. Lloyds is the UK’s hottest residential residence mortgage supplier with a market share of round 19%.

Automobile crash coming?

Based mostly on all of the above, I really feel buyers ought to take into consideration shopping for different worth shares as a substitute. And particularly once I get onto doubtlessly the most important risk to Lloyds within the short-to-medium time period.

As a serious automotive finance supplier, Lloyds faces doubtlessly billions of kilos in fines if discovered responsible of mis-selling motor loans. HSBC thinks the Monetary Conduct Authority probe into the non-disclosure of seller commissions may value the sector a staggering £44bn.

If that’s the case, this might trigger shockwaves for Lloyds’ income, dividends and, as a consequence, share price. The financial institution may be low cost, however I believe this displays the excessive diploma of threat it poses.