Lloyds profit drops on high interest rates, competition

Halifax Lloyds

But the UK’s biggest mortgage lender said its customers are “resilient” as it revealed improved forecasts for parts of the economy in 2024

Lloyds Banking Group has seen its profits decline more than a quarter in recent months, as interest rates hit a peak and competition in the mortgage and savings market heated up.

But the UK’s biggest mortgage lender said its customers are “resilient” as it revealed improved forecasts for parts of the economy in 2024.

Lloyds said its statutory pre-tax profit for the first three months of the year hit £1.6 billion, down 28% from the £2.3 billion reported during the same period in 2023.

It came in marginally below predictions, with analysts expecting a quarterly profit of £1.7 billion.

Lloyds said the drop was partially driven by lower net interest income – the difference between what it generates from loans and pays out for deposits – which was down a 10th to £3.2 billion.

This had been expected as mortgage costs decline from the highs hit during the beginning of last year and as more savers moved cash into accounts with higher returns.

Total lending by the banking group, which also includes Halifax and Bank of Scotland, was down £1.2 billion during the quarter.

This was driven by lower mortgage lending, as more homeowners opted to refinance their mortgage deal at the beginning of the year than at the end of last year when there was more economic uncertainty.

It came as competition has stepped up among UK lenders to offer customers better deals amid a period of historically high rates.

But, since the end of the quarter, Lloyds has seen a rise in the volume of mortgage applications, which it expects to result in greater lending through the year.

Chief financial officer William Chalmers said around half of the group’s customers tied to a fixed-rate mortgage have refinanced since October 2022, representing around £100 billion worth of lending.

A “significant chunk” of borrowers, with loans worth around £50 billion, are set to still refinance over the course of the year.

Meanwhile, total deposits were down by £2.2 billion during the quarter, which it said showed more business customers withdrawing cash.

Chalmers said: We have seen an improved outlook for the economy – we think it will get better over the course of 2024 versus what we saw at the year end.

“Not massively so,” he stressed, but added: Overall I think that is positive from a customer activity point of view.

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