Lloyds Lifts Outlook on Stronger U.K. Economy After Covid

(Bloomberg) --

Lloyds Banking Group Plc sees higher profits and fewer bad loans this year after a rebounding U.K. economy fueled better-than-expected third quarter earnings. 

Profit at Britain’s biggest mortgage lender almost doubled to 2 billion pounds ($2.7 billion), ahead of analyst expectations for 1.4 billion pounds, according to a consensus compiled by Bloomberg. The bank released 84 million pounds from its provisions for souring loans and said impairments will be a net credit over the year, in a sign that borrowers are coping well after the pandemic.

Repayments on emergency business loans issued last year are “comfortably better than our expectations,” said Chief Financial Officer William Chalmers. “Some of them have taken advantage of ‘pay as you go’, which in some cases include payment holidays and in other cases include an extension for example, and a relatively small proportion have gone into early stage of arrears.”

The buoyant housing market continued to fuel growth in Lloyds’ loans and advances, which were up 2.8 billion pounds to 450.5 billion pounds in the quarter.

Shares in Lloyds were 2% higher at 8:40 a.m. in London. “Overall we view these as a very good set of results,” analysts at Citigroup Inc. said in a note to clients.

As part of its improved outlook, Lloyds said net interest margin will be modestly above 250 basis points this year, while return on tangible equity will be over 10%. The bank will publish a strategy review in February, Charlie Nunn said in his first earnings since becoming chief executive officer in August. 

Lloyds isn’t alone in taking advantage of Britain’s return to growth after more than a year of Covid-19 restrictions. Barclays Plc more than doubled pretax profit at its domestic unit as lending improved and impairments decreased. CEO Jes Staley said that consumer spending was now above levels seen before the pandemic. 

Lloyds also took a further 100 million-pound charge for remediation, including more to compensate victims of the HBOS Reading fraud. 

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