0
0
Lloyds Banking Group has posted a 28% drop in profits for the first three months of the year as intense competition in the mortgage and savings market hit its earnings.
The country’s largest mortgage lender, which owns the Halifax brand, said pre-tax profits dropped to £1.6bn between January and March, having fallen from £2.3bn last year when rising interest rates boosted the lender’s profits by almost 50%.
Pressure from politicians and regulators to pass on interest rates to savers at the same rate they had been raising mortgage and loan charges has squeezed income for major mortgage providers such as Lloyds in recent months.
In response, banks have competed harder for customer deposits by offering more substantial returns, particularly on fixed savings products where consumers lock away cash for longer. Customer deposits fell by about £2.2bn to £469.2bn.
Lloyds was also knocked by competition in the mortgage market, leading to a drop in its total outstanding loan book.
The banking group said net interest income, which accounts for the difference in loan charges versus what is paid out to savers, fell 10% to £3.2bn in the three months to March.
That was offset by a drop in the amount of cash put aside for potential defaults. Despite the cost of living crisis and higher mortgage repayments, which have weighed on borrowers, Lloyds said it set aside £57m for bad debt provisions, compared with £243m last year.
Lloyds said this is “a result of the improved economic outlook in the first quarter”, particularly in house prices, which it now expects to rise 1.5% during 2024. It is also forecasting a steady rise in economic growth, at a rate of 0.3% in most quarters, a drop in the headline rate of inflation to 2.4% – from 3.2% in March – resulting in a fall in interest rates to 4.5%, by the end of the year.
The bank said that the rate of unemployment, though, is expected to nudge higher, to 4.6%.
The Lloyds chief executive, Charlie Nunn, said: “The group is continuing to deliver in line with expectations in the first quarter of 2024, with solid net income, cost discipline and strong asset quality. Our performance provides us with further confidence around our strategic ambitions and 2024 and 2026 guidance.”
after newsletter promotion
Investors had also been hoping for updates on the Financial Conduct Authority investigation into whether consumers have been charged inflated prices for car loans. Lloyds, which has the largest car loan division of the four biggest UK banks, has already put aside £450m – far short of the £2bn that analysts believe it could be on the hook for.
However, Lloyds did not give any more details about whether it might put aside more cash to cover potential fines or compensation for customers. The FCA has indicated that it will give more details on its findings by the autumn.
