27th Jul 2022 11:00
(Alliance News) - Lloyds Banking Group PLC is in a strong position to return cash to shareholders even as concerns over the ongoing cost-of-living crisis darkens the UK's economic outlook.
The UK's largest mortgage lender on Wednesday raised its annual guidance against a beneficial backdrop of rising UK interest rates.
For the six months to June 30, net income was GBP8.45 billion, up 11% from GBP7.56 billion a year before, but pretax profit fell 6.4% to GBP3.66 billion from GBP3.91 billion.
Net interest income in the interim period jumped 65% to GBP7.20 billion from GBP4.37 billion year-on-year.
Lloyds said it set aside GBP377 million to cover a possible increase in loan defaults as UK interest rates rise to combat rampant inflation, reversing a release of GBP734 million a year before.
Underlying profit before the impairment was up 34% to GBP4.12 billion in the first half, driven by strong net income growth.
Lloyds's CET1 ratio - a key measure of a bank's financial strength - stood at 14.7% on June 30, down from 16.7% at the same time last year but ahead of its ongoing target of 12.5% plus a management buffer of 1%.
Turning to returns, Lloyds declared a 0.80p interim dividend, up 20% from last year and worth GBP550 million in total.
Looking ahead, Lloyds said it is "enhancing" its guidance due to a strong performance in the first half.
Lloyds said its banking net interest margin is now expected to be greater than 280 basis points. It was 2.77% in the first half, up from 2.50% a year before. In April, it had raised this guidance to above 270 basis points, versus guidance of 260 basis points previously.
Lloyds said its return on tangible equity is now seen at 13% in 2022. It was 13.2% in the first half, down from 19.2% a year ago. Previous guidance stood at greater than 11%.
AJ Bell's Russ Mould said Lloyds delivered an "excellent" set of first half results despite setting aside some extra cash to cover the risks associated with bad debt.
However, Mould said there was "too much concern" about the impact of a potential recession on the performance of the business.
"A downturn in the housing market, which has defied gravity for longer than many would have believed possible, feels inevitable at some point. However, Lloyds and the other banks have much stronger balance sheets than they did 15 years ago and it still looks well placed to pay out to shareholders through dividends and share buybacks," said Mould.
"All Lloyds can do it keep plugging away, making the business more efficient, and hope to see the share price rewarded in time for the progress made," he added.
By Arvind Bhunjun; [email protected]
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