31st Jul 2015 09:54
LONDON (Alliance News) - Lloyds Banking Group PLC on Friday declared its second dividend since the financial crisis as it reported higher profit in the first half, raised its guidance for 2015, and said it will consider returning surplus capital to shareholders in future.
The results were not free of bad news. Lloyds took a "disappointing" GBP1.4 billion provision for the payment-protection insurance scandal in the half, bringing the bank's total provision to GBP13.4 billion, as PPI complaint volumes were above expectations in the half, Lloyds said, with claims management companies blamed for the continuing claims.
The bank also counted the GBP117 million cost of a fine imposed by regulators for its handling of PPI complaints and a GBP318 million provision for other conduct, including a GBP175 million charge for complaints about packaged bank accounts.
Chief Executive António Horta-Osório said that Lloyds is "well positioned" as regulators emphasise the importance of protecting consumers and its small business customers. The CEO stressed that securing customers' trust is a "key imperative" as UK banks continue to deal with the consequences of past misconduct.
"We have delivered significant improvements in both underlying and statutory profitability, while at the same time strengthening the balance sheet, improving our customers' experiences and continuing to support and benefit from UK economic growth," Horta-Osório said in a statement.
Lloyds said it made a GBP1.19 billion pretax profit in the six months to the end of June, up from GBP863 million in the corresponding half last year. Underlying profit, which strips out costs such as the provision for PPI, increased to GBP4.38 billion from GBP3.82 billion, as revenue increased due to higher net interest income, stable costs and lower impairment charges for bad loans.
The underlying net interest income, essentially the difference between what the bank makes from interest received on loans and what it pays to savers, increased by 6% to GBP5.72 billion, largely due to an improvement in net interest margin. Lloyds said the improvement in net interest margin, which it put to improved deposit pricing, lower funding costs, and the disposal of lower margin run-off assets, enabled it to lift its guidance for net interest margin for 2015 as a whole to about 2.60% from earlier guidance of exceeding 2.55%.
It also lifted guidance for its asset quality ratio - a measure of impairments for bad loans as a percentage of average loans to customers - as underlying impairment charges fell by 75% to GBP179 million. Lloyds now expects the asset quality ratio to come in at about 15 basis points for the full year, compared to previous guidance of 25 basis points.
The bank said it will pay an interim dividend of 0.75 pence per share. It wants to be able to pay at least half of sustainable earnings to shareholders in the future as part of a progressive and sustainable dividend policy, and will consider special dividends or share buy-backs in future. Further detail about the bank's plans for distributing surplus capital had been highly anticipated by analysts and investors.
The bank's common equity tier one ratio, a key measure of financial strength and ability to pay dividends, increased to 13.3% from 12.8% during the six months. It maintains its CET1 ratio at a level it thinks enables it to fund growth, meet regulatory requirements and "cover uncertainties" it faces. The bank said the capital it retains can be broken down into a 12% ratio plus a further year's ordinary dividend, meaning that surplus capital is currently seen as that which is over and above a 13% CET1 ratio.
The return to paying dividends has acted as a catalyst to the government's effort to complete the sale of its stake in the group. The bank's improving health facilitated the return to paying dividends earlier this year, when Lloyds declared a symbolic 0.75p per share for 2014, the first such distribution since the crisis struck.
The taxpayer's stake, which was once as high as 43% after Lloyds was bailed out the tune of GBP20 billion during the global financial crisis of 2007-09, currently stands at 14.98%.
The government wants to sell part of its remaining stake in an offering to private investors, and Horta-Osório told journalists he thinks the bank's guidance on capital returns and dividends could make the taxpayer's remaining shares more attractive to potential buyers.
Lloyds shares were down 1.3% at 84.92 pence Friday morning in London.
By Samuel Agini; [email protected]; @samuelagini
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