Deposits fell sharply during the period (pic of BoS Blairgowrie branch: Terry Murden)

Lloyds Banking Group has joined its peers by beating quarterly profits forecasts with earnings rissing on the back of higher interest rates.

The group, which includes Bank of Scotland, Halifax and Scottish Widows, said first quarter pre-tax profit came in 46% higher at £2.26 billion, better than the £1.95bn average of analyst forecasts.

Like NatWest, though, deposits fell sharply, by £2.2bn to £473.1bn, including a reduction in retail current account balances of £3.5bn.

This was partly driven by seasonal customer outflows, including tax payments, higher spend and a more competitive market, Lloyds said.

Lloyds took an impairment charge of £243m, up from £177m a year ago, despite a slightly improved economic outlook for the UK.

It said it was seeing “modest” increases in borrowers falling into arrears and defaulting on loans amid the cost-of-living crisis, but said levels remain at or below those seen before the pandemic struck.

John Moore, senior investment manager at RBC Brewin Dolphin, said: “Lloyds has followed the other major UK banks with a strong set of results that have beaten expectations. A higher net interest margin – among other factors – has boosted profits for the quarter.

“While an increase to costs takes a little shine off the bank’s performance, there is still a lot to be positive about. First Republic’s collapse has hit US banks’ shares, but looking longer term Lloyds could be among the beneficiaries in that some challenger banks don’t have the strength and depth to navigate through the current environment.

“This could create opportunities for Lloyds, which may see the bank retain some of its firepower, rather than going too hard on dividends and share buybacks.”

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