Lloyds – Q1 profits better than expected, driven by lower impairments
- Net interest margin 2.95% vs 2.93% expected
- £57mn impairment vs £280mn expected
- Underlying profit £1.8bn (down 21%) vs £1.7bn expected
Matt Britzman, equity analyst, Hargreaves Lansdown:
“Lloyds is doing exactly what it needs to do. Don’t focus on the year-over-year numbers too much. Yes, the drops look substantial from this time last year but that’s been expected for some time, the environment is simply not as favourable as it once was. That said, Lloyds is showing why the UK banking sector is an attractive place to be right now. Consumers remain resilient to cost pressures and default trends look stable, at or below pre-pandemic levels. At the same time, the economic outlook is improving, and impairment charges came in lower than analysts had 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. 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. But it doesn’t have to deliver too much growth here right away. Continued performance like this paves the way for the structural hedge to do its job. Lloyds is expecting hedge earnings to generate an extra £700mn in 2024.
Investors will be pleased to see no further impairments taken in preparation for the outcome of the FCA’s review into motor financing. This is the key unknown that could keep the brakes on Lloyds’s upside in the short term.”
