26th Jul 2023 16:51
(Alliance News) - Lloyds Banking Group PLC faces gathering storm clouds analysts warned, which took the shine off a strong first-half performance.
In the six months to June 30, the Edinburgh-based bank reported pretax profit of GBP3.87 billion, up 23% from GBP3.15 billion a year ago, but slightly below the GBP4.00 billion average of analyst forecasts compiled by the bank.
Shore Capital's Gary Greenwood said the earnings miss was primarily due to higher-than-expected impairment and volatility charges.
Impairment charges for the six months leapt 76% to GBP662 million from GBP377 million the year before, with GBP419 million of this arising in the second quarter, more than double last year’s total of GBP200 million.
Despite this, asset quality remains resilient, and the portfolio is well-positioned in the context of cost of living pressures, the bank said.
Danni Hewson at AJ Bell said "there are storm clouds gathering," and Lloyds has to consider how many of its customers are likely to struggle as they face a jump from ultra-low fixed rates to the unexpected new normal.
Shares in the UK's largest lender fell 1.6% to 45.38 pence in London on Wednesday.
"We know that rising interest rates, cost of living pressures and an uncertain economic outlook are proving challenging for many people and businesses," Lloyds boss Charlie Nunn said as he pledged to proactively support customers.
Positively, Lloyds did raise guidance for net interest margin and return on capital. For 2023, the bank expects NIM to fall more slowly than previously forecast, easing to 3.10% this year instead of 3.05% while it predicts return on equity to be greater than 14% compared to 13% it had guided before.
But Shore Capital's Greenwood explained "the new levels are already captured in consensus, which may still edge down slightly given the Q2 miss".
Richard Hunter at interactive investor, commented: "The second quarter slowdown has taken some of the shine from the bank’s recent progress."
But he felt "for the half-year as a whole Lloyds has again shown its financial mettle".
The profit growth was "proof positive that Lloyds remains a tightly-run ship," he said. "The balance sheet is clearly in rude health, and the bank announced an increase to the dividend which takes the projected yield to 5.5%," he added.
Zoe Gillespie, investment manager at RBC Brewin Dolphin, was also positive.
"Lloyds has narrowly missed analyst expectations with its results, but the bank remains in a very strong position," Gillespie said.
"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," Gillespie added.
Analysts at Jefferies reiterated a 'buy' noting the results ticked the boxes in its view. "We do not see consensus moving materially on this print," the broker said.
By Jeremy Cutler, Alliance News reporter
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