Financial Results
Statutory After-Tax Profit Falls At Lloyds Banking Group
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.