Earlier this year, the Lloyds Banking Group (LSE:LLOY) share price hit the highest level in over a decade. Yet things have been a bit more complicated in recent months, with the share price down over 11% in the past three months. So if we took a step back and looked at the performance from someone who invested in Lloyds shares at the beginning of the year, how would it currently look?

Less profit than anticipated

A £1k investment from the start of January at 99.24p would have apprecaited in value by 2.83%, based off the current price of 102.05p. This means it would be worth £1,028.30. On the one hand, it’s a profit. Yet it’s somewhat underwhelming relative to the broader FTSE 100 performance and versus what I think some people might have assumed.

One major concern that has pushed the stock lower in recent weeks is the upcoming UK Budget. With the government under pressure to raise revenue, speculation has grown that banks could face higher taxes. One proposal involves increasing the existing 3% corporation tax surcharge on banking profits. For Lloyds, which generates most of its earnings domestically, this could be a big headache.

There’s also the ongoing motor finance compensation saga. Lloyds has already recognised a £1.95bn provision relating to historical commission arrangements, but legal challenges and uncertainty surrounding the final compensation scheme continue to weigh on sentiment. Investors understandably dislike liabilities that are difficult to quantify.

The direction from here

Even though the performance this year hasn’t been outstanding, that’s not to say things won’t get better in the coming year.

First, the underlying financial performance remains impressive. First-half net income increased 9% to £9.7bn, while statutory profit after tax jumped 23% to £3.1bn. Importantly, the return on tangible equity reached 17.1%, suggesting Lloyds is generating attractive returns from its capital.

The bank also expects underlying net interest income to exceed £14.9bn in 2026. Given that I believe interest rates will continue to rise, I think this income is only trending higher.

Shareholder distributions are another attraction. Lloyds increased its interim dividend by 30% to 1.58p per share and announced plans for an additional £1bn share buyback. It now has a dividend yield of 3.58%, above the FTSE 100 average.

Needing more clarity

It’s true that the Budget represents a big near-term risk for the stock. Therefore, I’m not wanting to buy Lloyds shares ahead of it.

Meanwhile, concerns about the UK economy haven’t disappeared. Higher borrowing costs, stubborn inflation and pressure on household finances could eventually translate into weaker demand for mortgages and higher loan defaults.

If we can get through the next month and have more clarity on what 2027 could look like for the bank (and it’s positive), then I’m happy to reassess things then. But as we currently stand, the risk relative to reward doesn’t stack up for me.

Should you invest £5,000 in Lloyds Banking Group Plc right now?

When investing expert Mark Rogers and his team have a stock tip, it can pay to listen. After all, the flagship Twelfth Magpie Share Advisor newsletter he has run for nearly a decade has provided thousands of paying members with top stock recommendations from the UK and US markets.

And right now, Mark thinks there are 6 standout stocks that investors should consider buying. Want to see if Lloyds Banking Group Plc made the list?

Jon Smith has no positions in the shares mentioned.