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Lloyds profits up 46% after interest rates surge

A general view of Lloyds Bank in Commercial Road, Portsmouth
FTSE 100: Lloyds profits swell by nearly 50% as bank boosted by interest rate rises. Photo: PA/Alamy (Rob Arnold)

Lloyds (LLOY.L) has posted a 46% surge in profits for the first three months of the year after being boosted by rising interest rates.

The group reported pre-tax profits of £2.3bn for the three months to March 31, up from £1.5bn a year earlier.

The bank made a provision of £243m in the first quarter to cover potential losses after reporting "modest" rises in arrears, mainly in commercial banking loans and mortgages.

Read more: FTSE 100: HSBC sees profits triple with help from Silicon Valley Bank deal

UK households are being squeezed by a once in a generation cost of living crisis, with inflation at a double digit high of 10.1%.

Loans and advances to customers fell £2.6bn to £452.3bn while customer deposits of £473.1bn were down £2.2bn – including a reduction in Retail current account balances of £3.5bn – as customers dipped into savings and shopped around for better interest rates.

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Deposits in its commercial banking arm meanwhile increased by £2.7bn.

Charlie Nunn, chief executive of Lloyds, said: “The group has delivered a solid financial performance in the first quarter of 2023, with strong net income and capital generation, alongside resilient observed asset quality.”

However, he cautioned that “the macroeconomic outlook remains uncertain.”

Read more: FTSE 100: NatWest profits surge on the back of higher interest rates

“We know that this is challenging for many people. Our purpose driven strategy, alongside our financial strength, means we can continue to support our customers across the country," Nunn said.

Underlying net interest income rose 20% to £3.54bn, primarily driven by a stronger banking net interest margin of 3.22% in the quarter.

John Moore, senior investment manager at RBC Brewin Dolphin, said: “Lloyds has followed the other major UK banks with a strong set of results that have beaten expectations. A higher net interest margin – among other factors – has boosted profits for the quarter.

“While an increase to costs takes a little shine off the bank’s performance, there is still a lot to be positive about.

“First Republic’s collapse has hit US banks’ shares, but looking longer term Lloyds could be among the beneficiaries in that some challenger banks don’t have the strength and depth to navigate through the current environment.

“This could create opportunities for Lloyds, which may see the bank retain some of its firepower, rather than going too hard on dividends and share buybacks.”

Richard Hunter, head of markets at Interactive Investor, said: “Lloyds has brought down the curtain on the quarterly banking reporting season with another show of strength, as it breezed past expectations on virtually all measures."

Gary Greenwood at Shore Capital said the results “show better than expected earnings driven with beats in most line items other than net interest income.”

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