25th Oct 2018 10:55
LONDON (Alliance News) - Lloyds Banking Group PLC said Thursday it has delivered a drop in third quarter profit, but a "strong and sustainable" first nine months are expected to help the bank to hit its improved financial targets in the full year.
For the nine months to September end, Lloyds pretax profit increased 9.6% to GBP4.93 billion from GBP4.50 billion.
Lloyds attributed the year-to-date rise to an 11% reduction in below the line charges and a lower effective tax rate of 26%.
In the same period, the bank's net income increased 2.3% to GBP13.42 billion from GBP13.12 billion the previous year. Total income increased 1.9% to GBP14.15 billion from GBP13.89 billion.
The net income rise was mainly due to the increase in net interest income, which was up 4.6% in the first nine months of the year to GBP9.54 billion from GBP9.12 billion.
The bank's net interest income increased on an improved net interest margin and an increase in average interest-earning banking assets - which grew slightly to GBP435.9 billion.
Lloyds banking net interest margin in the first nine months rose to 2.93% from 2.85%.
The FTSE 100-listed lender's return on tangible equity in the first nine months was 13.0%, up from 10.5% in the same period the year before.
Lloyds operating costs in the year-to-date were largely flat at GBP6.01 billion but the bank saw a 38% rise in impairment charges to GBP740 million from GBP538 million in the same period a year ago.
The bank's restructuring costs increased too, seeing a 30% rise to GBP612 million from GBP469 million.
A significant portion of the bank's restructuring costs stemmed from a GBP105 million loss on the sale of its Irish mortgage portfolio to Barclays Bank in May.
Lloyds PPI provisions in the for the year-to-date totalled GBP550 million - down from GBP1.05 billion last year - with total impairments of GBP740 million , up from GBP538 million the year before.
Lloyds did not pay any additional charges for Payment Protection Insurance in the quarter.
"In the first nine months of 2018 we have delivered a strong and sustainable financial performance, with increased profits and returns and continued strong capital build. These results further demonstrate the strength of our business model and the benefits of our low risk, customer focused approach," said Antonio Horta-Osorio, chief executive.
Lloyds total assets at September 30 decreased slightly to GBP829.2 billion from GBP829.8 billion at June 30.
The bank's loans & advances to customers at September 30 were GBP444.6 billion, a slight increase from GBP442.3 billion at June 30.
Lloyds said its growth was partly offset by a GBP700 million reduction in its closed mortgage book.
The bank's loans & advances grew due to the rise in loans to commercial banking, which were 4.0% higher in the quarter at GBP39.1 billion compared to GBP37.6 billion at the end of June.
Lloyds customer deposits in the year to September 30 increased 5.7% to GBP422 billion compared to GBP418 billion in the six months to the end of June.
The bank's retail relationship savings accounts deposits decreased slightly in the quarter to GBP147.4 billion but commercial deposits increased 3.2% to GBP134.6 billion from GBP130.4 billion at the end of June.
Lloyds said it will continue to "optimise" funding and target current account balance growth. For the year-to-date, the bank's combined retail and commercial current account balances are up 7%.
The retail & commercial bank improved its common equity tier one ratio in the third quarter to 14.6% from 14.5% at the end of the previous quarter, maintaining "balance sheet strength".
Pre 2018 dividend accrual, its CET1 ratio increased to 15.5% from 15.1%.
Lloyds said it CET1 increase was down to continued strong profit generation but was partially offset by market movements and expected additional pension contributions.
The lender's numbers for the third quarter do not make for as comfortable reading, however.
In the three months ended September, Lloyds's pretax profit decreased 6.7% to GBP1.82 billion from GBP1.95 billion the year before, due to the significantly higher restructuring costs.
Lloyds posted restructuring costs of GBP284 million, a 59% increase from the GBP148 million paid in the same period a year before.
The costs included severance costs for the bank's "strategic" investment plans as well as the expected costs of the integration of MBNA and Zurich UK's workplace pensions & savings business.
The bank's operating costs in the three months were largely flat at GBP1.99 billion with a 5.2% increase in impairment costs to GBP284 million from GBP270 million.
The slight drop in operating costs in the quarter were attributed to increased efficiency from Lloyds digitalisation and process improvements.
Lloyds net income increased 2.3% to GBP4.45 billion from GBP4.35 billion the previous year. Total income rose by 1.5% to GBP4.69 billion from GBP4.62 billion.
Lloyd's banking net interest margin in the quarter was 2.93%, up from 2.90% in the same period last year.
The lender's return on tangible equity in the period was 14.8%, a decrease from the 15.3% achieved a year ago.
Horta-Osorio added: "We remain on track to deliver the improved financial targets for 2018 that we announced in August, as well as all of our longer term guidance."
Lloyds upgraded its margin and capital guidance for the full year with the release of its interim report in August.
The bank now expects its full-year net interest margin to be in line with the first half and its asset quality ratio to be less than 25 basis points.
Lloyds also expects its capital build to be about 200 basis points - the top end of its guidance. Its other long-term targets remain unchanged.
The lender also announced that Chief Financial Officer George Culmer will retire "during" the third quarter in 2019. He is expected to retire after the bank's first half results.
Lloyds said a search for successor has commenced.
Shares in the bank were up 2.1% on Thursday at 57.85 pence each.
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