Britain's Lloyds Banking Group signaled that falling house prices, competition on savings and rising costs may crimp future returns after reporting flat profit growth for 2022.
Lloyds, Britain's biggest mortgage lender, said home loan volumes across the sector had plunged to between £1.1-1.2 billion a day, down from £1.5 billion normally.
It added that UK house prices are likely to drop 7% this year.
While British inflation is trending downwards, steep rises in energy, food and mortgage bills are still pinching household budgets and have raised the risk of loan defaults.
Lloyds set aside £1.5 billion in 2022 to cover potential loan distress, a year after releasing £1.4 billion of provisions as the UK economy rebounded from Covid-19.
"Higher interest rates may have boosted income over the past year, but the uncertain economic outlook they are contributing to is also forcing banks to put aside more provisions," City Index Market Analyst Joshua Warner said.
Lloyds reported pre-tax profits of £6.9 billion for 2022, unchanged on the previous year and in line with analyst forecasts it had compiled.
It plans to pay a 1.6 pence per share final dividend and a share buyback of up to £2 billion, taking total shareholder returns for 2022 up to £3.6 billion.
Expenses also rose 6% to £8.8 billion, partly due to rising wage bills as Lloyds boosted its staff bonus pool by 12% to £446m.
Lloyds - which also owns the Halifax, Bank of Scotland and Scottish Widows brands - is the last of Britain's 'Big Four' high street banks to report full-year earnings, after HSBC, NatWest and Barclays.
Rivals have reported robust profits but struggled to convince investors the boost from higher central bank rates - enabling them to cash in on the widening gap between what they charge on lending and pay out on savings - will be long-lasting.
Lloyds reported a 14% rise in revenues to £18 billion and said it was now targeting a return on tangible equity in excess of 15% by 2026, having previously targeted more than 12%.
But it suggested its net interest margin - a key underlying measure of profitability - may fall this year from its level at the end of 2022 of 3.22%.
Lloyds' closest domestic rival NatWest unnerved investors last week by suggesting both Bank of England rates and interest margins may already have peaked, dimming the outlook.
Barclays' shares also slid on its own disappointing outlook and a tough year for its investment bank, while HSBC overcame some investor scepticism with a pledge for bumper payouts.
Lloyds also said it had bought Tusker, a vehicle leasing company that provides electric vehicles via salary sacrifice schemes, for £300m.
