Lloyds Q1 profits drop by 28% image credit: shutterstock

Lloyds Banking Group posts statutory profit after tax of £1.2bn for the first quarter. This compares to £1.6bn for the year ago quarter. Net income is down by 9% on the prior year with operating costs ahead by 11%.

This is partly offset by the benefit of a lower impairment charge. Underlying net interest income of £3.2bn is down 10%, with a lower banking net interest margin, as expected, of 2.95%.

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“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,” said Charlie Nunn, group CEO.

Another positive relates to the FCA investigation into car loans pricing. By market share, Lloyds leads the market in auto loans but has made no further provisions this quarter for possible customer redress. It has already aside £450m to cover potential compensation or regulatory fines.

2024 full year guidance reaffirmed

Based on the bank’s current macroeconomic assumptions, Lloyds continues to expect:

  • Banking net interest margin of greater than 290 basis points
  • Operating costs of c.£9.3bn plus the c.£0.1bn Bank of England levy
  • Asset quality ratio of less than 30 basis points
  • Return on tangible equity of c.13%
  • Capital generation of c.175 basis points
  • To pay down to a CET1 ratio of c.13.5%

Lloyds numbers show why UK banking sector remains an attractive place

Matt Britzman, equity analyst, Hargreaves Lansdown, said: “Lloyds is doing exactly what it needs to do. Don’t focus on the year-over-year numbers too much. Yes, the drops look substantial from this time last year but that’s been expected for some time. The environment is simply not as favourable as it once was. That said, Lloyds is showing why the UK banking sector is an attractive place to be right now.

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Consumers remain resilient to cost pressures and default trends look stable, at or below pre-pandemic levels. At the same time, the economic outlook is improving, and impairment charges came in lower than analysts had expected.

There are still pressure points, from customers switching to higher-rate accounts to a mortgage market that’s not as profitable for banks as it was a few years ago. But both those trends are easing. Don’t expect to see loan growth shoot the lights out and it was perhaps one area of weakness from these results, along with higher costs. But it doesn’t have to deliver too much growth here right away. Continued performance like this paves the way for the structural hedge to do its job. Lloyds is expecting hedge earnings to generate an extra £700m in 2024.

Investors will be pleased to see no further impairments taken in preparation for the outcome of the FCA’s review into motor financing. This is the key unknown that could keep the brakes on Lloyds’s upside in the short term.”