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Lloyds reported better than expected earnings in the third quarter as customers took advantage of lower interest rates to borrow more.
The UK bank said on Wednesday that lending had been boosted by a pick-up in credit card use and unsecured loans, while its mortgage book grew by £3.2bn in the quarter. Its total loan book grew slightly to £457bn, from £452bn a year earlier.
“It is a slightly more robust mortgage market,” said chief financial officer William Chalmers, who cautioned that lending levels risked going “up and down, quarter to quarter” due to volatility in markets.
Lloyds announced statutory profits before tax of £1.8bn in the period, above market expectations of £1.6bn and down slightly from £1.9bn the previous year. Shares rose by almost 2 per cent in morning trading on Wednesday.
Chalmers said there had been a period of “uncertainty” ahead of the Labour government’s highly anticipated Budget next week, but added that it had influenced customer behaviour “only in a very limited way”.
Lloyds was hoping for a “confidence-boosting” Budget, he said. Asked about the possibility of higher taxes on banks, which have benefited from a windfall thanks to higher interest rises, Chalmers said the sector was one of the “largest taxpayers already”.
“It is important to have a competitive, stable tax regime to encourage the type of investment and indeed the type of lending that we would seek to do to promote the growth agenda,” he added.
UK house prices and transactions have been rising as the fall in mortgage rates has given buyers more confidence. The Bank of England cut its benchmark rate to 5 per cent in August while UK house sales rose in September at their fastest rate since the post-pandemic rebound.
Lloyds’ net interest margin — the difference between the interest it charges on loans and the rate it pays on customer deposits — rose on the previous quarter to 2.95 per cent as it benefited from a so-called structural hedge that protects it against falling interest rates.
Chief executive Charlie Nunn reaffirmed the group’s guidance that net interest margin should be higher than 2.9 per cent this year as he flagged “growth in income alongside continued cost discipline and strong asset quality.”
The bank said current account balances had fallen by £1.1bn in the quarter, a smaller decrease than in the previous quarter as the trend of customers moving their money to chase better savings rates eased.
Lloyds’ impairment charge for potential bad loans fell to 172mn, from £187mn in the same period last year, as it noted “resilient credit performance” but wrote back a “one-off” debt sale of £77mn.
The bank said customers had demonstrated improved confidence, with non-essential spending among its customers rising 5 per cent since the start of the year.
The high-street lender expects a return on tangible equity — a key measure of profitability — of about 13 per cent this year.
