Lloyds Banking Group PLC on Wednesday backed its annual outlook after third-quarter profit beat market expectations, despite weakening from a year ago.
‘The group delivered a robust financial performance in the third quarter of 2024, with growth in income alongside continued cost discipline and strong asset quality. Our performance allows us confidently to reaffirm our 2024 guidance,’ commented Chief Executive Charlie Nunn.
In response, shares rose 1.9% to 63.19 pence each in London on Wednesday, outperforming the wider FTSE 100 index, which was up 0.2%.
The Edinburgh-based lender said pretax profit declined 1.9% to £1.82 billion in the three months to September from £1.86 billion a year prior, beating a company-compiled consensus of £1.62 billion.
This was driven by lower net interest income and higher operating expenses, partly offset by a lower impairment charge, the bank said.
Net income fell 3.7% to £4.35 billion from £4.51 billion, as a 6.2% fall in underlying net interest income to £3.23 billion from £3.44 billion hurt its bottom line. Both figures narrowly beat consensus forecasts of £4.29 billion and £3.21 billion respectively.
For the full-year, Lloyds still expects a banking net interest margin ‘of greater than 290 basis points’. For the third-quarter, the banking NIM fell 13 basis points on-year to 2.95% from 3.08%. According to RBC Capital Markets, NIM had been forecast to decline to 2.93%.
The lower margin reflected anticipated headwinds due to deposit churn and asset margin compression, particularly in the mortgage book as it refinances in a lower margin environment. These factors were partially offset by benefits from higher structural hedge earnings as balances are reinvested in the higher rate environment, Lloyds commented.
In the quarter, the cost income ratio rose to 53.4% from 51.1%. Operating costs fell 2.2% to £2.29 billion from £2.24 billion a year ago.
Customer deposits were little changed at £475.7 billion from the second quarter, while loans edged up 1.0% to £457.0 billion from £452.6 billion. The latter was supported by credit card and loan growth, while the mortgage portfolio expanded by £3.2 billion.
The CET1 ratio improved to 14.3% from 14.1% although it was down from 14.6% on-year.
The lender recognised remediation costs of £124 million in the first nine months of 2024, down from £134 million a year ago, with no further charges in respect of the UK Financial Conduct Authority’s review of historical motor finance commission arrangements.
Asset quality remains strong with resilient credit performance in the quarter, Lloyds said. Underlying impairments in the year to date was £273 million compared with £849 million a year ago.
The return on tangible equity for the first nine months of 2024 was 14%, down from 16.6% a year ago, with 15.2% in the third quarter alone. The bank continues to expect the return on tangible equity for 2024 to be around 13%.
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