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The Lloyds (LSE: LLOY) share price has had a fantastic run this year and that got me thinking about UK banking stocks.
Shares in the company are up 50% year to date and sitting at 82.6p as I write on 18 August. However, I think that impressive run means the UK bank may be overpriced compared to some of the other banks.
Recent gains
UK banks including Lloyds have benefited from rising interest margins, resilient loan demand, and positive half-year results, all of which have fuelled the recent share price rally.
Investors have also cheered its shareholder-friendly ongoing share buyback programme and consistent dividend payout.
But let’s talk numbers: Lloyds is now trading on a price-to-earnings (P/E) ratio of around 12.6 as I write. That is noticeably more than Barclays and NatWest (both 9.4 times). The one exception is HSBC, which is valued at 12.9 times right now.
This got me thinking about relative value. Is there a good reason for the P/E premium, or has the Lloyds share price simply run too far in 2025?
The case for a premium
There are some decent arguments for a lofty multiple. The bank has a really strong balance sheet, with solid capital ratios and a low-cost deposit base from customers.
Its UK focus could also be seen as a strength compared to some of its more international rivals like HSBC, potentially leaving it less exposed to global geopolitical volatility.
Then there’s strategy. Barclays and HSBC are both undergoing large restructures, which may give Lloyds the edge as it carries on a more settled path.
The bank’s investment in digital services could also be a potential growth driver for the future. If the measures taken can help to sustain margins, that could help justify a premium to its peers.
The company’s share price leapt to a 10-year high in early August after a favourable supreme court decision that could significantly reduce the expected payouts from the ongoing car finance scandal.
Why it looks expensive
Here’s where I hesitate. I think Lloyds relies more heavily on the UK retail and mortgage market than other major UK banks. For example, HSBC has a greater international reach while Barclays has a larger (albeit more volatile) investment banking division.
I think that makes Lloyds more vulnerable to local economic swings or rate shocks than some of its peers. Given this concentration risk, I find it difficult to pay a premium despite the positives outlined above.
That’s especially the case when NatWest and Barclays offer more diversified models at lower multiples.
My verdict
The Lloyds share price has been a standout performer in 2025, and I think existing shareholders must be happy with a 50% gain so far.
The bank appears to be in decent financial shape and has potential growth strategies in place.
However, I think there isn’t enough of a case for a premium over the likes of NatWest and Barclays. While I’m not actively looking for banking exposure, Lloyds isn’t the best value banking stock in my eyes at the current valuation.
