What happened

Shares of Lloyds Banking Group (LYG 0.43%) jumped more than 12% on Friday, as investors grew more optimistic that a Brexit deal could soon be reached.

So what

The uncertainty of how and when the U.K. will exit the European Union has weighed on the country's economy. The banking sector, in particular, has suffered, as banks have been forced to set aside funds to cover potential losses should a hard exit drive the U.K.'s economy into a tailspin. Brexit will also likely weaken London's position as a major financial center for the region, which could further pressure banks' profits.

Reports on Friday of progress toward a potential Brexit deal that would help support British banks helped to alleviate some of these concerns, and investors cheered the news. 

Two people sitting at a table facing each other, with a U.K. flag and a European Union flag behind them

Lloyds Banking Group's shareholders are hoping that the U.K. and European Union can strike a Brexit deal. Image source: Getty Images.

Now what

Investors, however, should note that a deal has not yet been reached. Key challenges remain, such as whether customs checkpoints will be needed between the U.K and Ireland after Brexit. 

"There is a joint feeling that there is a way forward that we can see a pathway to a deal," U.K. Prime Minister Boris Johnson said. "That doesn't mean it's a done deal. There's work to be done." 

Still, judging by the sizable gains in Lloyds Banking Group's stock price on Friday, investors appear to be growing increasingly optimistic that a favorable Brexit deal will be achieved.