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Lloyds profits fall as inflation boosts bad debt

Uberior House, Lloyds
Lloyds Banking Group has seen a jump in bad debt

Lloyds Banking Group, owner of Bank of Scotland, Scottish Widows and Halifax, saw quarterly profits fall ahead of a potential rise in loan defaults.

Pre-tax profit came in at £1.5 billion for July-September, below the £1.8 billion average forecast and down on £2bn in the same period last year. Net income rose 12% to £13bn on the back of surging interest rates.

The UK-focused bank, which is also Britain’s biggest mortgage provider, reported a jump in bad debt charges to £668m, taking the total for the nine months to date this financial year to £1.045bn.

It now expects net interest margin, a key measure of the difference between lending and savings rates, to be above 2.9%, compared with 2.84% in the year-to-date.

“The current environment is concerning for many people and we are committed to maintaining support for our customers,” said Lloyds CEO Charlie Nunn.

AJ Bell head of investment analysis, Laith Khalaf, said: “For years the banks like Lloyds would have been dreaming of a time when they could see a meaningful rise in interest rates, allowing them to make more money out of the traditional activity of farming customer deposits and lending out that cash to achieve a decent return.

“However, rate rises at a time of acute pressures on households and businesses are very much a double-edged sword and Lloyds is just the latest to reflect that in rising impairments and provisions for bad debts.

“It says something less than positive about the UK economy that Lloyds is putting aside more than double what analysts had anticipated to protect against this risk.

“What will really upset the apple cart with shareholders is if Lloyds shows any sign of deviating from an upward path on dividends, which is a key reason many people hold the stock.”

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