Lloyds Banking Group Plc took higher bad loan charges that dragged its earnings below expectations in the second quarter, though it lifted its guidance for the rest of the year.
(Bloomberg) — Lloyds Banking Group Plc took higher bad loan charges that dragged its earnings below expectations in the second quarter, though it lifted its guidance for the rest of the year.
Pretax profit fell to £1.6 billion ($2.1 billion), below a Bloomberg-compiled estimate of about £1.7 billion, while its net interest margin rose slightly more than expected to 3.14%.
Loans and deposits to customers both fell about 1% compared to a year ago, with “modest net reductions in the open mortgage book.” The bank booked £419 million in impairment charges for borrowers it fears could default — more than double the charge it took a year ago.
Still, for the full year, Lloyds now expects its net interest margin to be greater than 3.1%, up from previous guidance of 3.05%, while operating costs are set to reach about £9.1 billion, unchanged despite continued inflation in the UK.
“We know that rising interest rates, cost of living pressures and an uncertain economic outlook are proving challenging for many people and businesses,” Charlie Nunn, the lender’s chief executive officer, said in a statement.
The Bank of England has raised rates 13 times in an attempt to curb inflation, which has been stuck above the central bank’s target for almost two years, though slowed slightly to 7.9% last month. As lenders earn more on money they hold with the central bank, they have come under increasing pressure from politicians and regulators to pass more of this windfall to their customers.
Lloyds, Britain’s biggest mortgage lender, is also exposed to the slowing housing market as surging rates make repayments more expensive for borrowers on new or variable-rate loans.
The bank is about halfway through Nunn’s three-year strategy to grow in wealth offerings, corporate banking and digital services. The firm said on Wednesday it was on track to generate £700 million in extra revenue and £1.2 billion in gross cost savings by the end of 2024.
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