Bank of Scotland owner Lloyds sees annual profits surge to almost £7 billion

Bank of Scotland owner Lloyds Banking Group has become the latest financial giant to reveal huge annual profits after releasing Covid loan loss provisions.

The group - the UK’s biggest mortgage lender - reported pre-tax profits surging to £6.9 billion in 2021, up from £1.2bn the previous year, though the figure was shy of City hopes.

Lloyds said results were boosted as it booked a £1.2bn credit from provisions for bad debts, having set aside £4.2bn the previous year, while it also benefited from a boom in mortgage demand. Its mortgage book jumped £16bn to £293.3bn in 2021.

The group, which also owns Scottish Widows, said it would buy back £2bn of its own shares and pay a final dividend of 1.33p a share.

Lloyds Banking Group is one of Britain's big banks, the country's biggest mortgage lender and is also behind the Bank of Scotland and Scottish Widows brands. Picture: Ian Rutherford

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The figures cap a slew of impressive results from the major players in the sector, following annual profits of £8.4bn at Barclays, HSBC’s mammoth $18.9bn (£13.9bn) earnings and £4bn in operating profits at Royal Bank of Scotland parent NatWest.

But Lloyds also revealed charges for past misdeeds of £1.3bn over the year, with a £775 million hit in the fourth quarter, including £600m for the HBOS Reading scandal, which took place before the financial crisis.

Recently appointed chief executive Charlie Nunn unveiled what he called an “ambitious” strategy alongside the results, promising a “significant shift” towards growth, more diversified revenues, greater efficiency and investing further in data and technology.

He said “2021 has been a year of solid financial performance”, adding: “I am confident that the group’s purpose, customer focus, unique business model and significant competitive strengths, embodied in our ambitious strategy, will ensure the group is able to deliver higher, more sustainable long-term returns and capital generation for our shareholders, whilst meeting the needs of broader stakeholders.”

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John Moore, senior investment manager at Brewin Dolphin, the wealth management firm, said: “Lloyds has delivered a strong set of results; albeit, they are slightly below expectations, with historic issues adding to costs.

“The bank’s results follow similarly strong numbers from NatWest, Barclays and HSBC, pointing towards a banking sector in, broadly speaking, rude health.

“With an already comparatively healthy net interest margin and enough capital to buy back its own shares, Lloyds is doing well - but, historically its fate has largely been tied to the performance of the UK’s housing market, the prospects of which currently split opinion.

“Performance at its other divisions, along with further diversification, may prove key in sustaining Lloyds’ recovery.”

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Freetrade senior analyst Dan Lane said: “Shareholders have given UK banks a free pass after a pretty grim few years but that can’t last forever and the market needs to see proactive signs from the sector that it’s getting back to normal.

“Lloyds’ position at the top of the lending tree also means shareholders will be eyeing up a year of rate rises and expecting even more in net interest margins from the bank.”

He added: “This year could really split the pack between those heavy on revenue from their trading divisions and those for whom a hike in interest rates could be a real boon.”

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