Lloyds Banking group's profit surges but £660m set aside for expected loan losses

It was driven by a boost in the bank’s income and a higher net interest margin – which shows the difference between what it earns from loans and pays out for deposits.

However, the banking group – which owns Lloyds Bank, Halifax and Bank of Scotland – saw its financial performance begin to slow in recent months.

Its second-quarter profit hit £1.6bn, down 29 per cent from the £2.3bn reported in the first quarter, but in line with the same period last year.

Furthermore, it set aside an impairment charge of £662m in the latest half-year to cover expected losses from bad loans.

UK mortgage holders falling into arrears increased in the latest period, Lloyds revealed, indicating that more borrowers have struggled with higher repayments as interest rates have risen.

Charlie Nunn, group chief executive of Lloyds, said: “We know that rising interest rates, cost-of-living pressures and an uncertain economic outlook are proving challenging for many people and businesses.

“The group delivered a robust financial performance in the first half of 2023 with strong net income and capital generation alongside resilient asset quality.

“We continue to make good progress on delivering our strategic initiatives. Combined with our franchise resilience, this better positions us to support our customers, both today and in the future.”

Richard Hunter, Head of Markets at interactive investor, commented: “Despite something of a slowdown in the second quarter as was largely expected, for the half-year as a whole Lloyds has again shown its financial mettle.

“ Net Interest Margin (NIM) came under some pressure over the latest three months, particularly from margin compression in the mortgage book where renegotiated loans are at slightly less profitable levels.

"This came at a time when banks are under pressure to increase savings rates given further interest rate hikes, which are clearly beneficial to NIM.

"Lloyds made some adjustments which resulted in an increase of £3.5bn of retail savings accounts, which helped to offset a drop of £6.2 bn in retail current accounts. Even so, NIM for the half-year of 3.18 per cent compares with 2.77 per cent from the year previous and, equally importantly, guidance for the full year was increased to 3.1 per cent from a previous forecast of 3.05 per cent.”

“Indeed, Lloyds upped a number of guidance measures in its outlook, such as the Return on Tangible Equity number to over 14 per cent from a previous 13 per cent. This was made possible by a strong return of 19.1 per cent in the first quarter which in turn was driven by a hike in underlying income. Indeed, Net Interest Income for the six-month period was ahead by 14 per cent, with a number of other key metrics also underlining the strength of the business.”