Lloyds Banking Group PLC doubles profits as UK economy improves

Lloyds Banking Group PLC (LSE:LLOY) posted stronger-than-expected profits for the third quarter and tightened its guidance for the full year based on an improved outlook for the UK economy.

Reporting results for the first time under new chief executive Charlie Nunn, Britain’s biggest lender said the improved performance reflected gradually increasing customer activity and particularly strong returns in its equity investment business.

Retail also benefited from increased customer activity, whilst insurance and wealth were flat. Commercial banking was down slightly against the second quarter of 2021 due to lower markets and corporate financing activity.

Total net income in the third quarter of £4.1bn was up 20% compared to the same period a year ago, with the nine months of the year so far up 8% to £11.6bn.

This was helped by the banking net interest margin improving to 2.52% from 2.2% in the first half.

Statutory profit before tax of £2.0bn in the quarter was almost double the level a year ago, while underlying profit was up 88% to £2.2bn. Analysts had on average forecast a profit of around £1.3bn.

Nunn said there were “clearly significant opportunities for Lloyds Banking Group to further develop its platforms and capabilities and grow through disciplined investment, empowering colleagues, enhancing collaboration and increasing agility”.

He said the board is developing the “next evolution” of Lloyds’ strategy and longer-term priorities, but in the meantime guidance for the full year was modified so that impairments are now expected to be a net credit for the year, with a net credit so far of £740mln, including £84mln in the third quarter.

Return on tangible equity is now expected to be over 10%, rather than circa that amount, while guidance for net interest margin is to be “modestly above” the 250 basis points previously indicated.