Should I buy Lloyds Bank stock for my ISA or other cheap UK shares?

Lloyds Bank (LSE: LLOY) has always looked attractive to me as one of the best cheap UK shares. However, for the past decade, the lender has been going through a transition. After the financial crisis, the bank spent years trying to tidy up its balance sheet to recover from its losses. Unfortunately, just as it looked as if it had recovered fully from the financial crisis, the coronavirus pandemic struck. 

For the past year, Lloyds has been attempting to manage the crisis as best it can. Luckily, the business has succeeded in avoiding falling back into the position it found itself in 12 years ago.

And it now looks as if the lender is making progress drawing a line under the past year’s uncertainty. As such, I’m considering adding it to my ISA, although there are other UK shares I’m also reviewing. 

Lloyds Bank outlook

The outlook for the banking group has improved significantly over the past few months. At the beginning of the pandemic, there were serious concerns about whether or not Lloyds and its peers would be able to withstand a tidal wave of loan losses from the crisis.

Even though they’ve had to write off billions of pounds in loans, they have. The UK financial services sector entered the situation in a relatively strong position. Other UK shares haven’t been so lucky. 

The latest trading update from Lloyds Bank showed that the company’s balance sheet is robust. For 2020, the UK’s biggest mortgage lender reported profits of £1.2bn. Its core capital ratio, a key measure of financial strength, increased to 16.2%, up from 15.2% in September. The bank’s minimum is 12.5%. 

These strong figures allowed management to declare a final dividend of 0.57p per share, the maximum permitted by the Bank of England.

Other UK shares

Based on these figures alone, I think the stock looks like an attractive acquisition at current prices. But there are risks to consider. The pandemic isn’t over, and we don’t know what the final impact on financial institutions will ultimately be. What’s more, low interest rates are hurting the UK financial sector. Banks like Lloyds depend on high interest rates to earn high profits.

If rates remain where they are today for the next decade, which is likely, Lloyds’ income may never return to pre-pandemic levels. 

Based on these risks, I wouldn’t rush to buy Lloyds Bank shares today. I think other UK shares may present a better way to play the UK economic recovery. These could include retailers such as Halfords.

Of course, this retailer does face its own slate of risks, such as falling UK retail sales. However, the group can set its own prices, unlike Lloyds which has to rely on the Bank of England. This is a significant advantage.

That’s why if I had to choose between the bank and retailer today, I’d avoid Lloyds and buy Halfords instead.