Lloyds profits beat expectations as interest rates rise

Lloyds Banking Group’s profits beat estimates in the third quarter thanks to strong revenue growth thanks to rising interest rates.

The banking giant revealed that its pre-tax profits amounted to £1.8bn for the three months to the end of September, down 2 per cent on the same period last year but ahead of the £1.6bn forecast. by analysts.

Net income rose 5 per cent to £4.3bn from the previous quarter as the company benefited from a slightly higher net interest margin (the difference between what banks pay savers and what they earn from the loans) of 2.95 percent.

Lloyds attributed this to increased profits from structural covers. This is when banks attempt to protect income and smooth income against interest rate fluctuations by using financial instruments to effectively “lock in” higher rates.

This helped offset the impact of “headwinds with respect to deposit turnover and asset margin compression” from customers refinancing their mortgages in a lower margin environment.

Property borrowing costs have returned to more normalized levels amid falling inflation and elevated expectations that the Bank of England will cut interest rates further.

More than two-thirds of Lloyds’ £4.6bn growth in underlying customer loans and advances during the latest quarter came from UK-based mortgages.

Customer deposits rose by £1bn to £475.7bn, meaning they have increased by £7.3bn so far this year.

Following the result, the bank maintained its annual guidance; It anticipates a net bank interest margin of more than 290 basis points and a return on tangible equity of around 13 percent.

Charlie Nunn, chief executive of Lloyds, said: “The group delivered a strong financial performance in the third quarter of 2024, with revenue growth alongside continued cost discipline and strong asset quality.”

However, the FTSE 100 company’s profits fell 12 per cent to £3.8 billion during the first nine months of the year.

Lloyds attributed the decline to lower net interest income and increased operating costs due to inflationary pressures, redundancy payments and “strategic investment”.

John Moore, senior investment manager at RBC Brewin Dolphin, said: “With interest rates on a downward trajectory, there will inevitably be an ebb and flow in the numbers, and there is some evidence of that today.”

He added that the bank’s strategic and potential future payments for the mis-selling of personal contract purchase (PCP) agreements to car buyers were the “two main issues” facing the bank.

The Financial Conduct Authority is currently investigating the historical use of discretionary commission arrangements (DCAs), which allowed lenders to fix the interest rate on car finance loans until they were banned three years ago.

Lloyds could be forced to pay billions in compensation in connection with the investigation because it owns Black Horse, one of the UK’s largest car finance companies.

Lloyds banking group shares They rose 1.8 per cent to 63.1p on Wednesday morning and have risen by around a third this year.