Lloyds doubles profits in 'challenging operating environment'

Lloyds Banking Group has announced a first quarter pre-tax profit of £1.3bn, almost double the sum achieved on a year ago, despite a "challenging operating environment".

The taxpayer-backed bank, which is on the verge of returning to private hands following monthly share sales by the Treasury, said the profit performance was mainly due to a reduction in charges and the economy proving more resilient than expected after the Brexit vote.

Underlying profits, which better reflect its day-to-day business performance, rose by just 1% to £2.1bn as interest rates remained low and it continues to focus on UK lending - shying away from more risky activities of the past.

Chief (Taiwan OTC: 3345.TWO - news) executive Antonio Horta-Osorio said: "In the first three months of this year we have delivered strong financial performance with increased underlying profit, a significant improvement in statutory profit and returns, and strong capital generation.

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"These results continue to demonstrate the strength of our customer focused, simple and low risk business model and our ability to respond to a challenging operating environment.

Lloyds shares closed 2% higher.

The bank is the latest in a string of businesses to warn of tougher times just this week - with rival Santander UK (LSE: 44RS.L - news) joining Whitbread (Frankfurt: WHF4.F - news) and Carpetright (Other OTC: CGHXF - news) in signalling greater caution as higher inflation starts to take its toll on consumer spending.

Lloyds said that student loans and further contract hire fleet leasing growth in its Lex Autolease business had bolstered its consumer finance division though retail and commercial banking income fell.

Amid fears that consumers have borrowed too much, Lloyds said it remained below levels seen before the financial crisis and it was maintaining its expectations of around 2% growth for the UK economy this year.

The bank, now less than 2% owned by the taxpayer, said its pre-tax profit improvement reflected the absence of a £790m charge - booked in the first quarter of 2016 - from its controversial move to buy back expensive bonds from investors.

Lloyds, which is the UK bank most exposed to the payment protection insurance (PPI) scandal, had already announced that the first quarter numbers would include a further provision of £350m.

It also said this month it was putting aside £100m to cover compensation for victims of fraud by former HBOS staff .

Mr Horta-Osorio said they would be "fairly, swiftly and appropriately" compensated - with the first payments expected to be offered next month.