Lloyds Banking Group's Lower Impairments Drive Pretax Profit Beat — Update

By Elena Vardon

Lloyds Banking Group's pretax profit beat views as the amount of money the bank set aside in provisions was smaller than expected, making up for a fall in income.

The British company--which is the country's largest mortgage provider--on Thursday reported pretax profit of 1.70 billion pounds ($2.19 billion) for the three months ended June 30, ahead of the GBP1.61 billion it posted for the same quarter the previous year and of GBP1.58 billion taken from a company-compiled consensus.

Better macroeconomic assumptions and stable to improving underlying credit quality led it to book GBP44 million in impairments, considerably less than the GBP305 million penciled in by analysts. "This could be viewed as a positive signal for the U.K. economy if less capital is being held for underperforming origination," Third Bridge analyst Max Georgiou said.

Excluding this charge, pretax profit missed expectations due to a depreciation in its car leasing book, which includes a charge linked to the decline in electric-vehicle prices.

Net income was GBP4.15 billion, compared with GBP4.53 billion for the year-earlier period and missing expectations of GBP4.27 billion. Pressure on net interest income--the difference between what lenders earn on loans and pay out on deposits--was behind the drop, which was partly offset by higher other income.

Lloyds's net interest margin, or NIM, slipped to 2.93% as forecast, from 2.95% in the first quarter. It said that its mortgage and deposit pressures are evolving as expected.

"The results are steady rather than spectacular, even though there is the promise of brighter times ahead," Interactive Investor's Richard Hunter wrote.

The group closed the period with a common equity Tier 1 ratio--a key measure of balance-sheet strength--of 14.1%, while market expectations were 14.2%.

For 2024, the lender still targets a net interest margin above 2.90%, operating costs of GBP9.4 billion, return on tangible equity of around 13% and a CET1 ratio of around 13.5%. It upgraded its impairment ratio view for the year, now expecting an over 0.2% ratio compared with above 0.3% previously.

"Our progress to date enables us to reaffirm 2024 guidance and remain confident in achieving our 2026 strategic objectives and guidance," Chief Executive Charlie Nunn said.

Shares in London traded slightly higher at 59.9 pence in early afternoon exchanges, after falling as much as 5% at market open amid a wider sell-off in U.K. equities. The FTSE 100 index was down 0.9%.

"The market may be a little disappointed not to see a NIM upgrade given rates have held up higher for longer," Shore Capital analyst Gary Greenwood said.

The board proposed an interim dividend of 1.06 pence, a 15% increase compared with a year prior.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

July 25, 2024 07:17 ET (11:17 GMT)

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