Lloyds profits up 21 per cent as its reduces losses for bad debt

The state-backed lender, which runs Lloyds, Halifax and Bank of Scotland, said on Friday it made a pretax profit before one-off items of £2.2bn for the three months to the end of March, at the top end of analysts’ expectations.

The bank said losses from bad debts fell 59 per cent from a year ago to £177m. Asset quality this year should be better than previously indicated, it said.

Its net interest margin - the difference between interest it gets from borrowers and what it pays to savers, a key driver of revenues - jumped 33 basis points to 2.65 per cent. It said it expects to exceed previous guidance of 2.55 per cent this year.

The bank, which has previously set aside billions to settle payment protection insurance (PPI) mis-selling claims, said no further provisions were needed for PPI this quarter. Reactive complaints were down 11 per cent year-on-year.

In addition to higher income, flat costs and lower impairments, the bank said the improving economy had helped its performance. Chief executive Antonio Horta-Osorio said he did not expect growth in the UK economy to slow anytime soon, despite uncertainty over the outcome of next week’s General Election.

Lloyds’ increasing strength has enabled the government to sell down its stake in the bank to 20.95 per cent, less than half of the 41 per cent share it took in rescuing it at a cost of £20bn to taxpayers in 2008.

The bank announced its first dividend in February since being bailed out and the Conservative party has said it will sell a further £9bn pounds worth of shares in the next year should it win the election, including a sale to retail investors.

Lloyds said it planned to pay a dividend for the half-year and full year for 2015, as previously guided, but would not be drawn on the level of the payment.

The bank made a statutory profit of £1.2bn, down 11 per cent on the year, after incorporating a £660m charge on the sale of its challenger bank TSB to Spain’s Banco de Sabadell.