Underlying profits rose, but the statutory result from the UK group showed a decline in the third quarter of this year from a year earlier.

Lloyds Banking Group yesterday reported a statutory after-tax profit of £1.209 billion ($1.4 billion) in the three months to 30 September this year, a fall of 24 per cent on a year before. Underlying profit before impairments rose, however, 22 per cent to £2.397 billion, the UK-listed banking group said. 

Net income rose 13 per cent year-on-year to £4.594 billion. Total costs dropped 4 per cent to £2.197 billion.

The bank said its Common Equity Tier 1 ratio stood at 15 per cent, ahead of the bank’s ongoing 12.5 per cent target and buffer of about 1 per cent. 

Looking at the nine months from early January, the bank said its underlying profit for this period was £5.475 billion, falling from £5.903 billion a year ago. Growth in net income was more than offset by an increased impairment charge, largely given the impact of the updated economic outlook and associated scenarios in the third quarter versus the underlying impairment credit for the same period in 2021. 

Looking ahead, Lloyds said its net interest margin now expected to be greater than 290 basis points; it expects operating costs to be about £8.8 billion. Return on tangible equity is expected to be about 13 per cent.

“Lloyds has seen its profits wiped out as it puts almost £700m aside in readiness for a weak economy. This non-cash charge is a buffer in case a high number of customers default on their loans. The best-case scenario is that the group has over-egged its estimates and some of that hoard will be released, ultimately boosting profits. The more difficult scenario comes if the economic dive is steeper than predicted, which would see impairment charges swell,” Sophie Lund-Yates, equity analyst at Hargreaves Lansdown, said. “To a large extent, Lloyds can’t control the external forces that govern its customers’ behaviour, but its particular exposure to traditional lending, especially mortgages, puts it in the firing line when conditions sour.”

“Lloyds is doing what it can to diversify its income streams and announced a grand new strategy recently, which involves beefing up its wealth management capabilities. In usual times this would be a strong idea, but the wealth management sector has had a torrid time in recent months, making this yet another challenge for Lloyds to get through. The bank is dripping with excess capital, so it has more than enough backbone to pull through these difficult times, but further dents to the income statement certainly can’t be ruled out,” Lund-Yates added.