By Greg Wright

Published 3rd May 2023, 12:17 BST

The group reported pre-tax profits of £2.3bn for the three months to March 31, up from £1.5bn a year earlier. Lloyds took an impairment charge of £243m, up from £177m a year ago, despite a slightly improved economic outlook for the UK.

Lloyds said it was seeing “modest” increases in borrowers falling into arrears and defaulting on loans amid the cost-of-living crisis but said levels remain at or below those seen before the pandemic struck.

It said the arrears mostly relate to mortgages written in 2006 to 2008, at a time when borrowers could over-stretch themselves, with many of these loans also on variable rates, making them vulnerable to base rate increases.

Lending giant Lloyds Banking Group has joined rivals in posting better-than-expected results for the first quarter as rising interest rates helped profits jump.

But the group’s chief financial officer William Chalmers said: “It’s very modest and doesn’t cause us any alarm.”

The group now expects the economy to fall by 0.6 per cent in 2023 overall – against its prediction in February for a 1.2 per cent decline – but still slip into a mild recession over the first three quarters, before returning to growth.

House prices are likely to fall by a more muted 5.3 per cent this year and 1.2 per cent in 2024, it added.

Chief executive Charlie Nunn said: “The macroeconomic outlook remains uncertain. We know that this is challenging for many people.”

The figures come after HSBC on Tuesday revealed profits more than tripled in the first three months of the year to 12.9bn US dollars (£10.3bn) as the sector is buoyed by higher interest rates.

Banking giant Barclays and NatWest also beat profit expectations when they reported last week.

But Lloyds said deposits fell £2.2bn, or 0.5 per cent, including a £3.5bn drop in retail current account balances, partially offset by a £2.7bn rise in the commercial banking division.

It said this was partly as a result of customers spending more on utilities and bills due to the cost of living crisis, as well as seasonal tax payments and as people looked to take advantage of better savings rates across the industry. Mr Chalmers said Lloyds does not believe there was a flight to safety amid the worries over a global banking crisis in recent months, sparked by the collapse of Silicon Valley Bank in the US.

Troubles in the sector keep bubbling up and, on Monday, US regulators seized troubled First Republic Bank and sold all of its deposits and most of its assets to JPMorgan Chase Bank in a bid to head off further banking turmoil in America. San Francisco-based First Republic was the third mid-size bank to fail in two months.

Mr Chalmers said the impact of this on the UK sector has so far been “very limited”.

Lloyds beats forecasts with 46 per cent leap in profits after interest rates boost