Lloyds beats profit forecasts boosted by rate rises and mortgage volumes

Lloyds Banking Group has beaten quarterly profit estimates and updated full-year guidance as interest rate rises and an increase in mortgages boosted the UK lender.

Second-quarter pre-tax profit rose to £2.04bn, inching up from £2.01bn a year earlier but beating consensus of £1.6bn. Revenues for the three months to June rose 10 per cent to £4.3bn from a year earlier and above consensus estimates of £4.1bn.

The lender took a £200mn impairment charge in the second quarter. A year ago it released £374mn in provisions for the coronavirus pandemic.

Lloyds raised its forecast for the year on Wednesday and now expects its net interest margin — the difference between what it pays for deposits and what it earns from lending — to be greater than 280 basis points, up 10 points from the estimate it gave in April. It forecasts a return on tangible equity to be about 13 per cent, rather than the 11 per cent it had expected previously.

The company’s open mortgage book, which covers products currently available to customers, increased 2 per cent year on year to £296.6bn as of the end of June. Credit card spending, which included discretionary spending on travel and entertainment, rose 7 per cent to £14.5bn.

The bank, along with other financial services, has benefited from rising interest rates. In June, the Bank of England increased the rate to 1.25 per cent, with governor Andrew Bailey suggesting that a further half-point rise was “on the table”. 

The high street lender said it was yet to see major difficulties in its loan portfolio but cautioned on the rising cost of living as customers face surging food and fuel prices. Inflation in the UK is running at a 40-year high of 9.4 per cent.

“The persistency and potential impact of higher inflation remains a source of uncertainty for the UK economy as many consumers grapple with cost of living pressures,” said chief executive Charlie Nunn.

Nunn has sought to drive a £4bn growth strategy at the lender, targeting areas including wealth management and its investment bank after years of retrenchment under former chief executive António Horta-Osório.

Nunn said 2.2mn customers had cancelled or blocked subscriptions since last summer.

Lloyds announced an interim dividend of 80p a share, up about 20 per cent on 2021.

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