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Lloyds Beats on Earnings and Lifts Outlook, Flags Inflation

Lloyds Beats on Earnings and Lifts Outlook, Flags Inflation

Lloyds Banking Group Plc’s pretax profit fell less than expected as it lifted its outlook for the year, while cautioning that the British economy is facing a challenge from higher inflation. 

Profit before tax at Britain’s biggest mortgage lender was 1.62 billion pounds ($2 billion), slightly above analyst expectations of 1.56 billion pounds, according to figures compiled by Bloomberg, though below last year’s result that benefited from the release of some Covid-era loan provisions. 

Lloyds said demand for mortgages was holding up after the strongest growth in home loans for a decade last year, with the open mortgage book growing 4% compared to a year ago to 295 billion pounds and defaults remaining low for the time being. The results were also boosted by a lower-than-expected impairment charge.

“Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the U.K. economy remains uncertain, particularly with regards to the persistency and impact of higher inflation,” said Chief Executive Officer Charlie Nunn.

Lloyds Beats on Earnings and Lifts Outlook, Flags Inflation

Lloyds also raised its guidance for the year, saying net interest margin would now be above 270 basis points, from 260 points the bank expected in February, while likely impairments would be even less than previously signaled. 

Shares rose as much as 2.9% in early trading in London. 

The lender echoed comments from rival HSBC Holdings Plc, which said in its earnings Tuesday that U.K. lending grew strongly as it braced for more global uncertainty. European lenders including Deutsche Bank AG and Credit Suisse Group AG have also flagged economic headwinds. 

The bank is heavily reliant on U.K. borrowers. While the economy rebounded quickly from pandemic restrictions, the country is now facing the biggest inflationary shock of all major advanced economies over the next two years, the International Monetary Fund warned last week. Analysts expect the Bank of England to raise interest rates again next week to help tackle spiraling price rises, which have hit a 30-year high of 7%. This would increase costs for about 2 million borrowers on variable rates and push other mortgage prices higher over the longer term.

Nunn’s new strategy, announced in February, will see the lender spend 3 billion pounds over the next three years on initiatives including its digital offering, more wealth services and expanding its role as a landowner through Citra Living. Lloyds said in March it was closing a further 60 branches as part of the shift toward online banking. 

©2022 Bloomberg L.P.