Lloyds records profit hike of 46%

Lloyds Banking Group has reported a 46% surge in pre-tax profits to £2.3bn in Q1 2023, up from £1.5bn a year ago, with higher interest charges for borrowers contributing to the increase. The bank, which owns Halifax and is the UK’s largest mortgage lender, also reported a 20% increase in net interest income to £3.5bn. Lloyds’ profits exceeded analysts’ forecasts of £2bn. However, the bank expects margins to drop over the rest of 2023 as competition for mortgage and savings customers intensifies.

Lloyds also revealed that deposits fell by £2.2bn to £473bn in Q1, partly due to higher spending by customers dealing with double-digit inflation, but also because of greater competition as customers opted for better savings offers from other lenders such as NS&I. Chalmers, the bank’s CFO, explained that competition from rivals had been particularly noticeable on the asset and liability sides of mortgages and savings, resulting in a fall in mortgage margins. Lloyds did not raise its guidance despite the Bank of England’s expected rise in interest rates to 4.5% next week.

Although Lloyds set aside £243m for potential customer defaults, a 37% increase from last year, it was nearly half the amount set aside in Q4 2022. The bank also reported a “modest increase” in the number of customers falling behind on loan and mortgage payments. Lloyds’ strong quarterly performance follows that of other high street banks, which reported better-than-expected profits on the back of higher interest rates. NatWest posted a 50% increase in profits to £1.9bn, while Barclays revealed its largest Q1 profit since 2011, and HSBC’s profits tripled to $12.9bn (£10.3bn) from $4.2bn last year.

Despite interest rate rises contributing to the earnings of UK banks, the same rises triggered the mini-banking crisis in March, which resulted in the collapse of Silicon Valley Bank and Signature Bank, and the emergency rescue of Credit Suisse. However, Chalmers believes that the crisis’ impact on the UK has so far been “very limited”.