Lloyds defies stressed economy to post 57% jump in profit

London — Lloyds Banking Group reported a 57% jump in annual profit on Thursday, despite Britain’s faltering economy and a £450m charge for potential costs from a regulatory review into motor finance.

Lloyds reported pretax profit of £7.5bn for the 12 months, up from £4.8bn in the year-earlier period and slightly above the £7.4bn average of analyst forecasts compiled by the bank.

The group — which also spans the Halifax, Bank of Scotland and Scottish Widows brands — announced a final dividend of 1.84p and a share buyback of £2bn.

As Britain’s biggest mortgage lender, Lloyds’ fortunes are inextricably linked with those of the wider economy — which entered a recession in the second half of 2023, official data showed in February.

But like its rivals, Lloyds has enjoyed a huge boost to lending revenues from higher Bank of England interest rates — which underpin borrowing costs — while containing losses from potential bad loans as more borrowers feel the pinch.

Lloyds set aside £308m to cover potential unpaid loans, well down on £1.5bn the previous year.

The light charge for bad loans was in part thanks to a writeback worth £541m, after a single borrower repaid debts in full and the bank made slight improvements to its forecasts for the UK economy.

Lloyds CEO Charlie Nunn confirmed that the writeback came from the repayment of historic loans made against Britain’s Telegraph newspaper, repaid by the Barclay family. This led to a £700m writeback of old losses on the loans, Nunn said.

The bank also set out muted performance guidance for the year ahead, with net interest margin — a key measure of underlying bank profitability — forecast to fall to 2.9% from 3.11% this year.

That drove guidance for returns for 2024 to just 13%, down from 15.8% in 2023 before recovering to 15% by 2026.

Analysts at Jefferies described the profitability guidance for 2024 as “credible”, despite a disappointing fourth-quarter performance.

PROVISION

Lloyds set aside £450m to cover possible redress claims linked to a regulatory review into suspected historic overcharging by car finance lenders. Some analysts estimate the bank’s potential costs could rise as high as £2bn.

Lloyds CFO William Chalmers said the provision was the bank’s “best estimate” and declined to comment on analyst models.

Analysts at RBC have estimated the sector’s total compensation bill could reach £16bn, making it the costliest consumer banking scandal since mis-selling of payment protection insurance (PPI).

Lloyds also announced it had appointed former Banco Santander executive Nathan Bostock to its board, after deputy chair Alan Dickinson said he would step down after nine years of service.

Bostock was CEO of the Spanish lender’s UK arm from 2014 until 2022.

Reuters