Reaction: banking giant Lloyds sees H1 profit surge but narrowly misses analyst expectations

Bank of Scotland owner Lloyds Banking Group has reported a surge in its half-year profit as it continued to benefit from higher borrowing costs.

The Edinburgh headquarters of Lloyds-owned Bank of Scotland. Picture: Andy Buchanan/AFP/Getty Images.

The British banking giant said it made a statutory pre-tax profit of £3.9 billion in the six months to the end of June, nearly a quarter higher than the £3.1bn reported the same time last year. It was driven by a boost in the lender's income and a higher net interest margin – which shows the difference between what it earns from loans and pays out for deposits.

However, the FTSE 100 group – which also owns Lloyds Bank, Halifax and Scottish Widows – saw its financial performance begin to slow in recent months. Its second-quarter profit hit £1.6bn, down 29 per cent from the £2.3bn reported in the first quarter, but in line with the same period last year.

Furthermore, it set aside an impairment charge of £662 million in the latest half year to cover expected losses from bad loans. UK mortgage holders falling into arrears increased in the latest period, Lloyds revealed, indicating that more borrowers have struggled with higher repayments as interest rates have risen.

Charlie Nunn, group chief executive of Lloyds, said: "We know that rising interest rates, cost-of-living pressures, and an uncertain economic outlook are proving challenging for many people and businesses. The group delivered a robust financial performance in the first half of 2023 with strong net income and capital-generation alongside resilient asset quality.

"We continue to make good progress on delivering our strategic initiatives. Combined with our franchise resilience, this better positions us to support our customers, both today, and in the future."

Zoe Gillespie, investment manager at RBC Brewin Dolphin, said: “Lloyds has narrowly missed analyst expectations with its results, but the bank remains in a very strong position. Although it has highlighted potential headwinds, Lloyds has also increased its guidance for the year, buoyed by an improving net interest margin, relatively limited impairment costs, and good asset quality.

Opportunities

The banking giant said it made a statutory pre-tax profit of £3.9 billion in the six months to the end of June. Picture: Daniel Leal/AFP via Getty Images.

"A 15 per cent hike to its dividend is good news for shareholders, but there will almost inevitably be more questions over rates offered to savers in the current environment. While there was no continuation of the share buyback programme announced today, Lloyds may well be keeping its powder dry and positioning itself for the opportunities that could be ahead as some financial services providers struggle.”

Richard Hunter, head of markets at Interactive Investor, also commented: “Despite something of a slowdown in the second quarter as was largely expected, for the half-year as a whole Lloyds has again shown its financial mettle. Overall, an increase of 10 per cent to underlying profit and of 23 per cent to pre-tax profit... are proof positive that Lloyds remains a tightly-run ship.

"Bank shares have been overshadowed by the recent banking turmoil, while Lloyds has had to carry the additional burden of its reputation as being something of a barometer for the UK economy, which has not been a comfortable ride. The second quarter slowdown has taken some of the shine from the bank’s recent progress, but the market consensus of the shares as a buy for the longer term is unlikely to be unduly affected.”