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Lloyds Banking Group Plc missed estimates in the third quarter after the lender took charges for bad loans as it warned of a darkening outlook for the UK economy.
Pretax profit falls more than expected to £1.5 billion ($1.7 billion) after the bank took its biggest charge since the Covid-19 pandemic to cover loans that could default. The £668 million provision, more than double what analysts expected, overshadowed a jump in the net interest margin to 2.98%, helped by rapidly rising interest rates.
“The current environment is concerning for many people and we are committed to maintaining support for our customers,†Chief Executive Officer Charlie Nunn said.
Britain’s biggest mortgage lender is exposed to the slowing housing market as surging rates make repayments more expensive for millions of borrowers and property prices begin to fall. Lloyds’ total loans and advances barely changed in the quarter and now stand at £456.3 billion.
The bank now expects the UK economy to shrink 1% next year, with house prices falling 7.9%. Its worst-case model assumes a crash of almost 18% in house values. Lloyds also adjusted its earnings outlook for this year, saying margins would improve though its asset quality ratio, a measure of failing loans, would now be about 30 basis points, up from 20 points in July.
The Bank of England has already raised rates from 0.25% to 2.25% this year in an attempt to stem the highest inflation in four decades, and lenders are bracing themselves for another rate hike next week. This would be good news for net interest income — revenue collected from loan payments minus what depositors are paid — while potentially tipping more borrowers into distress.
—Bloomberg