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Lloyds Bank profits double in first three months of the year

Lloyds Bank - www.Alamy.com
Lloyds Bank - www.Alamy.com

Lloyds Banking Group revealed that profits doubled during the first quarter of the year as the lender brushed aside concerns it could be hit by a bubble in consumer credit.

Britain’s biggest mortgage lender posted a surge in pre-tax profits to £1.3bn from £654m in the same period a year earlier. The jump came despite the bank being forced to set aside a further £350m to cover compensation for the payment protection insurance scandal and a further £100m to reimburse the victims of a fraud scam at the HBOS Reading branch, which happened before the financial crisis.

In a further boost, Lloyds lifted its guidance for net interest margin, the key difference between the interest it receives in loans and pays on deposits. The margin rose to 2.80pc from 2.68pc at the end of 2016 and Lloyds now expects it to “be close” to the current level for the rest of the year, an improvement on its previous 2.7pc forecast.

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Coming just weeks before the Government is expected to return Lloyds fully to private ownership, the results provide a further boost to boss Antonio Horta-Osorio.

The taxpayer, which owned 43pc of the bank following its rescue during the 2008 crisis, now holds less than 2pc and the residual stake is likely to be sold off next month.

Last week it emerged that the Government had already recouped the £20.3bn it was forced to pump into the lender, an achievement that Mr Horta-Osorio today said was “huge source of pride for all of us at Lloyds”.

Shares in the bank climbed 2.8pc to 69.29p in the wake of the results, which allayed recent investor fears about the rapid growth in unsecured credit. In February, UK credit card debts hit a record £67.3bn.

Lloyds share price

The Bank of England is sufficiently worried about the jump in borrowing to launch a review into lenders’ underwriting standards, while the Financial Conduct Authority (FCA) is toughening up the rules on credit cards to force firms to help individuals burdened by long-term debt.

But Lloyds said that impairments for souring loans fell to £127m from £149m a year earlier, much better than the £250m that had been forecast by analysts at UBS.

“Within the unsecured book we are not seeing any signs of credit deterioration,” George Culmer, the Lloyds finance chief, said.

In December, Lloyds agreed to buy credit card provider MBNA from Bank of America for £1.9bn, a move that will lift its share of the market to 26pc from 15pc. However, there have been concerns that the FCA credit card proposals, announced earlier this month, could affect the returns Lloyds expects to generate from MBNA, which Mr Culmer brushed aside today.

“We were aware that the [FCA] consultation paper was coming, so we factored that into our review of [MBNA] book,” he said.

It came as challenger bank TSB, which was spun out of Lloyds and is now owned by Spanish group Sabadell, posted a 39.5pc slump in quarterly pre-tax profits to £31.8m. It has a deal with Lloyds to continue using its former owner’s IT system, and the fees it pays for this service jumped by £30.2m, a contractual increase that knocked its profits.

Boss Paul Pester said TSB was not exposed to any bubble in unsecured credit because it did not operate in the areas where there is most concern: vehicle financing and credit cards, which offer long periods of zero percent rates balance transfers.

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