Lloyds Banking Group has posted a jump in quarterly profits despite signs that the tailwind British lenders have enjoyed from rising interest rates is fading.
The FTSE 100 bank said pre-tax profits in the three months to the end of September climbed from £576 million a year ago to £1.86 billion, slightly higher than the £1.82 billion that had been expected by City analysts.
Its third-quarter profits for last year were restated from £1.5 billion to reflect accounting changes for companies with insurance businesses, which meant Lloyds had to recognise an exceptional one-off charge of almost £1.1 billion in the period.
In a boost to investors after Barclays cut its UK margin guidance on Tuesday, Lloyds stuck with its forecast of generating a net interest margin of more than 3.1 per cent for the full-year.
A bank’s net interest margin is a key gauge of profitability that measures the difference between what it charges on loans and pays to raise deposits. The downgrade by Barclays had rattled investors across the banking sector.
Advertisement
However, while sticking with its guidance for the year, Lloyds’ margin fell further than analysts had expected in the third quarter, slipping to 3.08 per cent from 3.14 per cent in the three months to the end of June. Analysts had anticipated a margin of 3.1 per cent in the three months to September 30.
The quarter-on-quarter fall comes as Lloyds and other high street banks push up interest rates on deposits following pressure from politicians and the Financial Conduct Authority to treat savers fairly.
There has been criticism that banks have been slower to pass through Bank of England base rate rises to their depositors than they have been to their borrowers. This has allowed lenders to sharply increase their net interest margins and thereby boost their profits.
However, savings rates have improved in recent months after Jeremy Hunt, the chancellor, warned banks about their treatment of depositors and the FCA said it would act against banks that were unable to demonstrate that their interest rates offered fair value to savers.
Lloyds is Britain’s biggest domestic lender. It owns Halifax, Bank of Scotland, the MBNA credit card business and Black Horse motor financing. It has been led since August 2021 by Charlie Nunn, who was previously at HSBC.
Advertisement
While rising interest rates boost banks’ profits, they are something of a double edged sword because they also raise the risk of borrowers defaulting on their debts. Lloyds took an impairment charge of £187 million for possible bad loans in the period, which was lower than the £336 million expected by analysts. The charge a year ago had been £668 million.
