Lloyds Sees Profits Fall Amid Increased Mortgage Competition

Lloyds Banking Group experienced a significant drop in profits for the first quarter of 2024, as heightened competition for mortgages and deposits squeezed its margins. The bank, which owns Halifax and Bank of Scotland, reported pre-tax profits of £1.6 billion from January to March, a decrease of 28% compared to the same period last year when it recorded £2.3 billion in profits.

The decline in profits reflects the challenging conditions in the UK’s mortgage market, with lenders competing to offer better deals to attract customers. Lloyds cited the heightened competition in the mortgage sector as the primary factor affecting its profit margins. Additionally, the bank made less from loans to businesses, although it saw an increase in income from credit cards and car finance.

Net interest income, the difference between what the bank earns from loans and what it pays out for deposits, fell by 10% to £3.2 billion ($4 billion). Russ Mould, investment director at AJ Bell, explained that the decline was largely due to customers moving their money into higher-interest savings accounts, reducing the bank’s revenue from deposits. He also mentioned that competition in the mortgage market had reduced the returns on these products, further impacting Lloyds’ profitability.

Lloyds’ profits had seen a boost over the past couple of years due to rising interest rates, which allowed the bank to charge more for loans. However, with competition intensifying and market expectations of a future rate cut, the bank’s profit margins have been under pressure. Lloyds’ brief period of benefiting from high rates “seems to have come to an end,” according to Mould.

Despite these challenges, Lloyds’ chief executive, Charlie Nunn, indicated that the quarterly results provided confidence in the bank’s strategic direction. The group continued to support its customers despite the shift towards higher-interest savings accounts and other cost pressures.

Lloyds’ latest results also revealed additional expenses, including a new sector-wide Bank of England levy on lenders and a £100 million charge to cover employee severance after a recent round of redundancies. Moreover, the group reported that it had not set aside any further cash beyond the £450 million already allocated to cover the potential cost of an ongoing investigation into car finance deals by the UK’s Financial Conduct Authority (FCA), launched in January.

Lloyds’ earnings release also included forecasts for house prices, predicting a 1.5% rise in 2024 and similar growth over the next four years. These predictions suggest a stable housing market, but the ongoing competition and cost pressures could continue to challenge the bank’s profitability in the coming quarters.

Pan Finance is a print journal and news website providing worldwide intelligence on finance, economics and global commerce. Known for our in-depth analysis and opinion pieces from esteemed academics and celebrated professionals; our readership consists of senior decision makers from across the globe.

Contact us