Lloyds quarterly profits jump even as loan loss provision climbs

Lloyds Banking Group reported an almost 50 per cent jump in first-quarter profits on the back of higher interest rates, but signalled that competition in the mortgage market was intensifying.

A string of interest rate increases from the Bank of England has buoyed profits at the lender, a trend that extended into the first quarter when Lloyds said pre-tax profits climbed to £2.3bn, up from £1.5bn a year earlier.

The group’s revenues rose 15 per cent to £4.7bn in the quarter, matching analysts’ expectations. Like UK rivals, Lloyds has lifted earnings over the past year despite the squeeze on UK consumers from higher inflation.

But its first-quarter results signalled that pressures on some of its customers are rising. The bank set aside £243mn to cover bad loans, up from £177mn in the same period last year but below the £356mn forecast by analysts.

The bank left its full-year financial forecasts unchanged, taking the shine off the better than expected first-quarter results.

Its net interest margin, the difference between the interest it receives on loans and the rate it pays on deposits, will average more than 3.05 per cent across the year, the bank said. The figure was 3.22 per cent in the quarter, close to what analysts had expected.

Chief financial officer William Chalmers said the bank was facing headwinds from greater competition in both the mortgage market, where it is the biggest UK lender, and in savings.

“We’ve seen mortgage margins as low as they’ve been for a while,” he said, as slowing demand from customers forces lenders to compete on price.

The BoE has lifted its base rate to 4.25 per cent and traders are now expecting it to reach around 5 per cent in September.

Shares in the bank were little changed on Wednesday, leaving them up 1 per cent for the year. The stock has been hit by the wider turmoil in the banking sector that has caused the sudden collapse of Silicon Valley Bank and a rescue sale of Credit Suisse in March.

“An uneventful set of results, which may drive some small consensus [earnings per share] upgrades to 2023 on the lower impairment charge, but is unlikely to change consensus for 2024-plus,” said analysts at Citigroup, who predicted that bank would improve its guidance at its interim results later in the year.

Lloyds said the level of current account balances dropped by £3.5bn in the first quarter, which it said stemmed from the seasonal impact of tax payments and higher spending by customers because of inflationary pressures.

The bank provoked a backlash among staff last week after telling those with hybrid working arrangements to spend at least two days in the office each week, with office usage monitored via “swipe card data”. Before the announcement, Lloyds did not require staff to spend a minimum number of days in the office.