Lloyds delivers 21% rise in Q1 profit

The banking group are convinced they'll be unaffected by the general election. Picture: PA

Unveiling strong first-quarter profits at the taxpayer-backed lender, group chief executive Antonio Horta-Osorio said he expected the UK economy to expand by between 2.5 and 3 per cent in 2015, and played down concern that a closely-fought election on 7 May could damage economic momentum and be bad for the banking sector.

“I don’t think the election will change these trends any time soon, we are favourable on the UK economy, it continues to progress at a healthy pace,” Horta-Osorio said.

His sanguine outlook came as Lloyds posted a 21 per cent jump in underlying pre-tax profits to £2.2 billion in the first three months of this year.

Lloyds, which owns Halifax and Scottish Widows, is seen as the most UK-exposed of the big five banking groups, with a 34 per cent market share in current accounts and a 30 per cent slice of the mortgages market.

The group’s bad debts fell nearly 60 per cent to £177 million in the first quarter, and it said these loan impairments should improve this year more than it had previously indicated.

Its key net interest margin (NIM) – the difference between the interest it gets from borrowers and what it pays savers – jumped 33 basis points to 2.65 per cent.

This was partly driven by lower wholesale funding costs, George Culmer, Lloyds’s finance director, said. He added that the bank expected to exceed its previous guidance for its NIM to be 2.55 per cent this year, but declined to say by how much.

Horta-Osorio has turned the bank’s fortunes around, enabling the government to sell about half its 41 per cent stake in the bank and return some £10bn to taxpayers.

In February, Lloyds announced its first token dividend since the financial crash, and Culmer said the group planned to pay both an interim and final dividend for 2015.

The Conservatives, currently governing in a coalition with the Liberal Democrats, have said a further £9bn of shares in Lloyds will be sold in the next year if it wins the election, including for the first time a sale to retail investors.

The bank’s statutory profit was down 11 per cent at £1.2bn in Q1 after a £660m charge on the sale of its TSB subsidiary.

Its core tier one capital ratio – the capital cushion backing its loanbook – rose to 13.4 per cent at end-March from 12.8 per cent at the end of December 2014.

Lloyds said its underlying performance was boosted by growth in mortgages and small business lending. It also benefited from not adding any further charges to its multi-billion pound bill to cover the payment protection insurance (PPI) scandal, though it would not rule out more in the future.

Reactive complaint volumes fell on the same period last year though were slightly higher than expected. However, Lloyds has £1.7bn left in its compensation pot to cover claims.

Richard Hunter, head of equities at Hargreaves Lansdown Stockbrokers, commented: “The Lloyds business is looking increasingly healthy, while the strength of the balance sheet and income growth augur well for the proper resumption of the dividend later in the year.”

Shares jumped 7.1 per cent to close at 82.87p, compared with the 74p taxpayer buy-in price.