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FTSE 100: Lloyds profits flat as it prepares for more loan defaults

Black horse sign over branch of Lloyds Bank
Amid the cost of living crisis, banks such as Lloyds have set aside even more money as they expect an increase of people who just can’t pay their loans. Photo: Getty (Paul Boyes)

Lloyds (LLOY.L) revealed unchanged annual profits of £6.9bn ($8.35bn) as the boost from rising interest rates wasn’t enough to cope with mounting bad loan provisions.

The UK’s biggest mortgage lender said full year pre-tax profits came in at £6.9bn and added that it would start another £2bn share buyback.

Read more: FTSE 100: HSBC announces special dividend as profit doubles on rising interest rates

Lloyds set aside £1.5bn over the year to cover potential defaults, compared to £1.4bn during lockdown-struck 2021. With inflation easing but still at a double-digit high, UK households are struggling with higher energy bills, steeper mortgage costs and even the grocery bill.

Amid this financial pressure on customers, banks have set aside even more money as they expect an increase of people who just can’t pay their loans.

Chief executive Charlie Nunn called it a robust performance as he declared a 20% increase in the total dividend to 2.40p a share. Net income rose 14% to £18bn.

“We know that the current environment continues to be challenging for many people and have mobilised the organisation to further support our customers. Our purpose-driven strategy is more relevant now than ever before. We remain committed to Helping Britain Prosper and helping the country recover from the current economic uncertainties,” Nunn said.

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“We continue to believe our strategy will create higher more sustainable returns, as reflected in our enhanced guidance. We are excited about the opportunities ahead.”

Lloyds said it had proactively contacted 5.5 million customers to offer support amid the cost of living crisis and reached out to over 200,000 mortgage customers to provide support with rising interest rates.

Despite the flat profits and the provision for bad loans booked, its annual report showed that the workforce would be rewarded with bonuses totalling £446m, a 12% increase.

Nunn received a total remuneration of £3.8m in 2022, according to the lender, including a £1.3m shares bonus.

He told the BBC Radio 4 Today programme: "On savings, the important starting point is to recognise that 80pc of our customers in the UK have less than £5,000, 65pc have less than £1,000.

"So one of our areas of focus has been making sure we're there to help make ends meet for those customers with less deposits and savings.

"For those with money to look to invest and to save we absolutely have been increasing savings rates and will continue to do so.There is a great set off products available to those customers, with rates ranging from 2pc to 5pc with our savings buildings products."

Joshua Warner, market analyst at City Index, said: "Lloyds has rounded off what has proven to be a tough earnings season for UK-focused banks. Higher interest rates may have boosted income over the past year, but the uncertain economic outlook they are contributing to is also forcing banks to put aside more provisions in case more loans turn bad in the future.

"The result for Lloyds was flat profits in 2022, as the 12% rise in net income was countered by rising costs and £1.5bn of provisions. Markets may be preparing for higher interest rates for longer, but the boost in profits for banks may have already reached its peak.

"While higher rates will continue to improve margins in 2023, Lloyds warned costs will rise around 3.4% and more provisions could be on the cards after Lloyds conceded the macroeconomic outlook remains uncertain.

"Investors will take some comfort by Lloyds accelerating its medium-term goals, targeting return on tangible equity of over 15% in 2026 rather than its previous goal of over 12%, and news that it has raised its dividend and launched a new £2bn share buyback."

Richard Hunter, head of markets at Interactive Investor, commented: “Lloyds has brought the curtain down on the banks’ reporting season in some style, exhibiting its traditional strengths of efficiency, profits and generous levels of shareholder returns.”

Watch: Age-old complaint about savings rates is down to you rather than bank bosses

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