After hitting a 52-week high of 117.9p in August, Lloyds Banking Group (LSE:LLOY) shares have retreated 8.4%. Now trading just above 107p per share, I’m questioning whether the bank’s five-year-long rally has reached its peak.

Even if it has, that doesn’t necessarily mean it’s time to sell. Before making any investment decision, it’s critical to assess latest results, broker forecasts and potential risks.

Strong results, real risks

The latest half-year numbers give shareholders reasons to stay interested. Lloyds reported £4.3bn of pre-tax profit for the six months to June, up 23% on a year earlier. Return on tangible equity (RoTE), a measure of how effectively the bank uses shareholders’ capital, reached 17.1%.

There’s cash coming back to investors too. The interim dividend rose 30% to 1.58p per share, while Lloyds announced an additional share buyback of up to £1bn. 

In summary:

• Pre-tax profit up 23% to £4.3bn.
• RoTE: 17.1%.
• Dividend up 30% to 1.58p.
• Additional £1bn share buyback.

Buybacks reduce the number of shares in circulation, potentially increasing each remaining shareholder’s claim on future earnings. For income investors, those distributions are hard to ignore.

But strong results aren’t a promise of strong returns.

Risks to consider

Lloyds’ underlying impairment charge, which reflects expected losses on loans, increased to £617m from £442m in the comparable period. A stark reminder that a bank’s fortunes can change when borrowers come under pressure.

Motor finance is another unresolved issue. Lloyds has already provided for potential redress, but legal challenges have led the Financial Conduct Authority to suspend parts of its compensation scheme. The eventual cost remains uncertain.

Meanwhile, the bank’s goal of roughly 20% RoTE by 2030 depends on delivering its strategy and on economic assumptions holding up.

It’s fair to say, the results and risks alone don’t provide a definitive answer. So what are the brokers saying?

Different views on upside

Looking at recent targets from some top brokers, there seems to be a general leaning towards optimism. But forecasts are just that – forecasts, and they tend to lean positive unless there’s a real reason for pessimism.

JP Morgan’s target combined with a neutral rating is particularly revealing. A target above the current price doesn’t automatically amount to a recommendation to buy.

Looking more broadly at a range of forecasts from 19 analysts, the average 12-month target is around 121p. From today’s price of around 108p, that implies a moderate return of about 12% before dividends.

Adding the dividend would ramp it up to 15% – not bad, considering the average portfolio’s lucky to achieve 10% a year. But that forecast could easily be derailed if profits disappoint or motor-finance costs rise.

My decision

Over the past few years, Rolls-Royce has taught me an important lesson: never assume a rally is over just because it’s been gaining for several years.

With that in mind, I don’t plan to sell my Lloyds’ shares simply because they’ve retreated a bit in the past month. The dividend policy and direction still fit within my long-term strategy.

At the same time, I won’t consider buying more now. The growth potential doesn’t look compelling enough against the company-specific risks and the outlook for UK borrowers.

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Mark Hartley owns shares in Lloyds Banking Group.