11 minutes ago
About sharing
Lloyds Banking Group’s profits plunged by 28% in early 2024 as competition grew for mortgages and deposits.
The bank posted pre-tax profits of £1.6bn between January and March, down from £2.3bn last year.
Lloyds said its margins had been hit “mainly within UK mortgages” amid heightened competition between lenders to offer squeezed buyers better deals.
The UK’s biggest lender also made less from loans to businesses, but more from credit cards and car finance.
The group, which owns Halifax and Bank of Scotland, said in the three months to the end of March that its net interest income, which is the difference between the money it generates from loans and pays out for deposits, fell 10% to £3.2bn.
The fall was expected as more people moved their cash into savings accounts with higher returns as mortgage rates eased because of the competition stepping up among lenders.
Like other UK banks, Lloyds’ profits were boosted by the increase in interest rates over the past couple of years, which have allowed lenders to charge more on loans.
For the whole of 2023, Lloyds’ pre-tax profits jumped to £7.5bn, which was higher than expected and up 57% on 2022.
It comes as borrowing costs have been hiked as the Bank of England increased its base interest rate in a bid to bring down inflation – which measures price rises over time.
In January, competition for customers saw lenders cut rates sharply although borrowing to a buy a property has remained more expensive than many people have been used to in the past decade.
The Bank of England is expected to cut rates this year, but predictions of when such a move might take place has seen some lenders start raising mortgage rates in recent days.
Lloyds’ rivals HSBC, NatWest and Barclays all raised rates on fixed-term loans, though not on all products, due to financial markets predicting an interest rate cut might not be as soon as previously expected.
Lloyds said it still believed the Bank would cut rates by 0.25 percentage points three times before the end of 2024, which if happens, would see rates fall from 5.25% to 4.5%.
On Wednesday, the average two-year fixed mortgage stood at 5.83%, while the average five-year deal was 5.41%.
Lloyds’ latest results also showed the shift in more customers moving cash out of current accounts and into savings accounts had continued.
The group also said it had faced higher running costs in early 2024, including a new sector-wide Bank of England levy on lenders and a £100m additional charge to cover employee severance after a recent round of redundancies.
It confirmed it had not set aside any further cash to the £450m it has already allocated to cover the potential cost of an investigation into car finance deals by the UK’s financial regulator.
A probe into whether people had beenpaying too much for cars was launched by the Financial Conduct Authority (FCA) in January.
Customer resilience
Matt Britzman, equity analyst at investment firm Hargreaves Lansdown, said while Lloyds’ profit fall looked “substantial from this time last year”, it had been expected.
“There are still pressure points, from customers switching to higher-rate accounts to a mortgage market that’s not as profitable for banks as it was a few years ago,” he added.
“But both those trends are easing. Don’t expect to see loan growth shoot the lights out and it was perhaps one area of weakness from these results, along with higher costs.”
Charlie Nunn, Lloyds’ chief executive, said the quarterly results provided the group with “further confidence” around its strategic ambitions and showed the bank was “continuing to support customers”.
As well as announcing its latest earnings, Lloyds released forecasts for house prices.
The group said it expected house prices to rise by 1.5% in 2024 and average that amount over the next four years.
Separately on Wednesday, Heathrow Airport reported a huge rise in profits before tax of £189m for the three months to 31 March after recording a £60m loss for the same period last year.
The UK’s biggest airport said some 18.5 million passengers travelled through it in early 2024, partly driven by growth on business routes to Delhi and Mumbai in India and strong North American traffic.
It has predicted this summer will be its “busiest on record”, adding it had “a robust operating plan in place to keep the airport running smoothly, even if unnecessary industrial action materialises”.
Holiday firm Jet2 also said its summer season was 55% sold so far, with forward bookings for package holiday customers up by 13% and flight-only passengers up by more than 18%.
22 February
22 February 2023