Nunn's warning

Lloyds strikes cautious note on cost of living impact

Bank of Scotland note
Rising prices are having an impact

Lloyds Banking Group CEO Charlie Nunn struck a cautionary note after revealing a rise in profits for the first quarter before4 taking into account £177m in impairment charges for an expected rise in bad loans.

Mr Nunn noted that the outlook for the UK economy “remains uncertain”, but the lender still upgraded its guidance for all of 2022.

Lloyds, which trades north of the border as Bank of Scotland and Halifax, said underlying profit before impairment was up 26% to £2bn in the first quarter, driven by strong net income growth.

It was down 14% from a year earlier after accounting for the charge related to possible defaults linked to the cost of living crisis.

Mr Nunn said the figures had to be set against a backdrop of rising prices and the conflict in Ukraine.

Charlie Nunn
Charlie Nunn: outlook uncertain

“Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation,” he said.

The bank reported strong revenue growth supported by continued recovery in customer activity and interest rate changes.

Net income was £4.1 billion, up 12%, with higher net interest and other income, alongside low operating lease depreciation.

It expects its net interest margin to be above 2.7%, while its return on equity is now set to be greater than 11% against a previous forecast of 10%.

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In the first three months, revenue growth outpaced cost increases with the top line buoyed by a continued recovery in customer activity along with higher net interest and other income.

Russ Mould, investment director at AJ Bell, said Lloyds’ first quarter update reveals a lot about the state of the UK economy.

“The country has been getting back on its feet, which is reflected by an increase in lending and savings deposits for Lloyds. However, the outlook is less than rosy.

“It’s serious when a bank talks about proactively contacting customers that could be facing financial troubles to offer help and guidance.

“This is quite a different tone from a company whose key messages were recently focused on expansion into wealth management – i.e. helping the rich to look after their money.

“The bank doesn’t want bad debts on its books, but neither does it want customers to be in trouble, so it is in its own interest and of society to help people manage their finances during this cost of living crisis. Lloyds is in a strong position financially to weather any storm but many of its customers won’t be.”

The shares closed 0.12p (0.25%) lower at 45.87p.



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