Lloyds Banking Group has reported a decline in its profits after revealing a £668 million impairment charge as it gears up for heavier loan losses amid soaring mortgage rates.
The UK’s biggest lender said its statutory pre-tax profits were £1.5 billion in the third quarter, a substantial drop from the £2 billion reported last year and falling short of the market consensus of £1.88 billion.
It revealed a £668 million impairment charge in the three months to September 30, a big swing from the £199 million it held onto in credit last year.
The current environment is concerning for many people and we are committed to maintaining support for our customersCharlie Nunn, Lloyds
Lloyds said that this reflects a forward-looking charge to guard against the worsening economy and higher inflation and interest rate environment.
But it assured investors that there has been only “very modest” evidence of customers struggling with repayments to date.
Customers falling into arrears, defaults and write-offs remain low and below pre-pandemic levels, the bank said.
The group has also seen its balance sheet boosted by bigger revenues on higher interest rates.
It said its underlying net interest income was up 15%, driven by a stronger net interest margin – which measures a bank’s returns versus their costs on loans – of 2.98% in the third quarter.
It comes as the Bank of England has hiked the base rate over recent months to its current level of 2.25%, sending average mortgage rates higher and making it more expensive to borrow.
Looking ahead, Lloyds cautioned that the base rate could peak at 4% in 2024 before falling back down.
The lender has updated its full-year outlook, including raising its net interest margin expectations to at least 2.9%.
Charlie Nunn, group chief executive at Lloyds, said: “Our income growth, balance sheet momentum and resilient customer franchise have enabled the group to deliver a robust financial performance and strong capital generation, alongside updated guidance for 2022.
“The current environment is concerning for many people and we are committed to maintaining support for our customers.
“The group’s resilient business model and prudent approach to risk position the group well to face the current macroeconomic uncertainties while generating enhanced returns for our shareholders.”