Lloyds Banking Group PLC (LON:LLOY) had net income of £4.1bn in the third quarter, largely reflecting increases in interest income from increased mortgage lending. There were also strong returns from the group’s equity investments as well as benefits from higher used car prices.
The release of credit provisions meant underlying pre-tax profit rose to £2.2bn, from £1.2bn this time last year.
Given the “solid financial performance and the improved UK macroeconomic outlook”, Lloyds has upgraded full year guidance. It now expects a net interest margin of above 2.5% and a return on tangible equity of over 10%.
The shares rose 2.0% following the announcement.
Lloyds Is Sitting Pretty
Sophie Lund-Yates, equity analyst at Hargreaves Lansdown:
“Lloyds is following the path trodden by other banks. A better-than-expected economic outcome from the pandemic means money that was put aside for debt defaults can now be released, plumping up profits in the process. Put that together with the fact mortgage lending remains elevated, and Lloyds is sitting pretty.
Despite the removal of some helpful tailwinds, there’s reason to expect mortgage activity will remain buoyant as Lloyds heads into the final quarter. A longer-term question is the future of Lloyds’ position as the UK’s largest bank branch network. Habits have changed since the pandemic, and the days of the bank branch could be numbered, especially as digital banking is so much more cost effective for the banks themselves.
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Positive trends are coming through in Lloyds’ net interest margin, which looks at the difference between what the bank charges on loans and pays on deposits. With thoughts that interest rates could budge upwards in the not-too-distant future, the banking giant could be looking forward to a meaningful boost on that front.”
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