Lloyds Bank Q3 profits surge despite lower lending

Lloyds Bank reported a massive jump in third quarter profits as it continued to cash in on higher interest rates, despite a reduction in lending to customers amid tough macroeconomic conditions.

Pre-tax profit for the three months to September 30 soared to £1.86bn from £576m a year earlier, slightly higher than the bank's own compiled estimates of £1.8bn.

Underlying net interest income rose 1% to £3.44bn with the net interest margin – the difference between loans and savings rates – up 10 basis points year on year to 3.08% but down six basis points in the quarter “given the expected mortgage and deposit pricing headwinds”, the bank said on Wednesday.

Loans and advances to customers fell 1% to £455bn, while the underlying impairment charge fell to £187m from £668m.

Customer deposits of £470.3bn were down £5bn, or 1%, including a £9.4bn reduction in retail current accounts, partly offset by a combined £5.2bn increase in retail savings and wealth balances. Deposits increased by £500m during the third quarter, given growth in retail savings, the bank said.

Lloyds held annual guidance, with slightly improved asset quality. It forecast net interest margin of greater than 310 basis points and operating costs of around £9.1bn. Its asset quality ratio was now expected to be less than 30 basis points.

Hargreaves Lansdown analyst Matt Britzman said Lloyds’ retail deposit base "put in a steady performance over the quarter as it managed to keep hold of savers looking for better rates".

"As we’ve seen over recent quarters consumers are conscious of the rates they’re receiving on current account deposits and are off in search of higher yields. Lloyds did see a 3% dip in current account values and has seen over £9bn in outflows year to date, but was able to make up for the loss this quarter with inflows into its savings products."

"These are less profitable products, and net interest margin was a touch lower than expected. But crucially, unlike Barclays who reported yesterday, Lloyds has enough confidence to keep full-year NIM guidance intact."

"There was chatter that Lloyds may lean on its strong balance sheet to push forward full-year buyback plans. But prudence is on the cards, and investors will have to wait until full-year results more any indication on the size of planned distributions – given the levels of excess capital floating about, there’s potential for surprise on the upside.”

Reporting by Frank Prenesti for Sharecast.com