1st Aug 2018 13:10
LONDON (Alliance News) - Lloyds Banking Group PLC posted a strong first-half performance Wednesday - and raised full-year financial guidance - despite having to take another payment protection insurance hit.
Shares in the FTSE 100-listed bank were up 1.8% in midday trading at 63.53 pence each.
Lloyds's pretax profit increased 23% to GBP3.12 billion in the six months to June 30 from GBP2.54 billion a year before, due to an increased underlying profit and lower year-on-year PPI charges.
Banks sold PPI to cover repayments for loans, credit cards and mortgages. The product was designed to help you re-pay if you could not make the payment yourself.
As many as 64 million PPI policies were estimated to have been sold in the UK, according to the Financial Conduct Authority, which were often mis-sold.
The lender booked GBP550 million in the half-year in relation to payment protection insurance redress, as its sees the claimant run-rate higher than previously thought ahead of next year's deadline - which was still below the GBP1.05 billion paid last year.
The PPI payments in the first half, GBP460 million of this in the second quarter, covered an expected 13,000 claims of mis-selling per week until the deadline in August 2019. The bank had previously assumed a run-rate of 11,000.
Lloyds estimates that for every additional 1,000 PPI complaints per week, above the 13,000 average, it costs the bank GBP150 million.
Lloyds has provided GBP19.23 billion so far for PPI claims on about 16 million PPI policies sold since 2000.
Lloyds estimates it has settled about 53% of its PPI policies since it 2011 - when banks were ordered to pay back customers.
Richard Hunter, head of markets at Interactive Investor, commented: "The additional PPI provision is an unwelcome development. The issue has long cast a shadow over the sector and Lloyds in particular."
"It is especially galling given that the first quarter update suggested that these provisions were on a downward trajectory and that the issue was close to being consigned to the history books."
Hunter continued: "This will not sit comfortably with the current view that the UK economy may have some troubling times to come, with Lloyds being potentially exposed to consumer defaults through its credit card business, let alone any difficulties which higher interest rates could bring."
The UK commercial and retail bank recorded restructuring costs of GBP377 million in the first half, up from GBP321 million the year before.
The GBP377 million paid this year included GBP155 million for severance costs relating to the lender's investment plans and the costs of integrating MBNA and Zurich's UK workplace pensions & savings business.
In June 2017, Lloyds agreed to buy MBNA for GBP1.90 billion from Bank of America Corp - which signalled the bank's first purchase since its government bailout.
Lloyds' increase in underlying profit to GBP4.23 billion from GBP3.95 billion was driven by higher net income and lower total costs, partly offset by a higher-than-expected impairment charge.
The FTSE 100-listed bank's net income increased 2% to GBP8.97 billion from GBP8.78 billion. Net interest income increased 7% to GBP6.34 billion from GBP5.93 billion the previous year.
The net interest income increased due to an improved net interest margin - up to 2.93% from 2.82% - and an increased average interest-earning banking assets, which were up 1% to GBP436 billion.
The 11 basis point increase in net interest margin, due to lower deposit and wholesale funding costs, more than offset the pressure on asset margins.
Customer deposits were up to GBP418 billion from GBP416 billion, at the beginning of the year, and wholesale funding increased 21% to GBP122 billion from GBP101 billion.
The net interest margin increase could be explained by the benefit of Lloyds changing product mix and growth in consumer finance - resulting from its acquisition of credit-card issuer MBNA.
Lloyds now expects its full-year net interest margin to match the target it achieved in the first half.
Lloyds' operating costs were flat year-on-year at GBP4.02 billion, despite increased investment and the acquisition of MBNA.
Before investment and the cost of MBNA, the lender's underlying cost base reduced by 7%, largely due to its digitisation process.
The FTSE 100 bank's impairment charges increased 70% to GBP456 million from GBP268 million in the first half, reflecting lower releases and write-backs.
The lender's loans and customer advances fell to GBP442 billion from GBP444 billion. However, Lloyds say that SME and motor finance have continued to grow, whilst its open mortgage book of GBP267 billion is in line with the beginning of the year.
Lloyds expects its open mortgage position at year-end to be slightly ahead of financial year 2017.
The bank's CET1 ratio, pre dividend, increased to 15.1% from 13.9%. The 121 basis point increases includes: 111 basis points from underlying banking profits; 8 basis points from the interim dividend received from its insurance business; 25 basis points from the sale of its Irish mortgage portfolio and 5 basis points from market movements.
The growth was partially offset by the 28 basis points for PPI charges. Post-dividend, Lloyds' CET1 ratio was 14.5%.
The lender expects its CET1 ratio to increase about 200 basis points pre-dividend in financial year 2018 - the top end of its guidance - and continue to deliver 170 to 200 basis point every year on an ongoing basis.
Lloyds is proposing an interim dividend of 1.07 pence per share, up from 1.0 pence per share last year.
Lloyds long-term targets remain unchanged.
Related Shares:
Lloyds