By Scott Wright

LLOYDS Banking Group shrugged off provisions for bad loans arising from the coronavirus crisis to book a pre-tax profit of £1.3 billion for 2020, but warned the outlook continues to be shrouded by “significant uncertainties”.

The Bank of Scotland owner saw profits fall from £4.4bn in 2019 but beat analysts’ expectations as its net impairment charge of £4.2bn, including £128 million in the fourth quarter, relating to the “deteriorating” outlook was lower than previously forecast. It had guided in October that provisions would be in the £4.5bn to £5.5bn range.

The lower-than-expected provisions echoed the outcome for 2020 reported by Royal Bank of Scotland owner NatWest Group last week. NatWest’s results included a net impairment charge of £3.2bn, dragging it to an operating loss of £351m, which came after it forecast setting aside between £3.5bn and £4.5bn in October.

Lloyds, which made a pre-tax profit of £792m in the fourth quarter, said the strength of its capital position had allowed it to resume pay-outs to shareholders, and declared a dividend of 0.57p per share. It will be its first dividend since the Bank of England asked the major banks to suspend payments after the pandemic took hold to protect their capital positions.

Alasdair McKinnon, fund manager of the Edinburgh-based Scottish Investment Trust, which holds a stake worth £3.3m in the bank, said: “Lloyds’ profits exceeded market expectations, although those were low by historic standards because of the effect of successive Covid-19 lockdowns on the economy. The bank signalled its confidence by reinstating its dividend, albeit at a much reduced level.

“The progress of the UK’s Covid vaccination plan appears to be good, giving confidence that the home economy can re-open and that the recovery can be swift. This has removed, for now, the threat of negative interest rates in the UK, a scenario which Lloyds and the other UK banks have seen baked into their share prices. This change in perception provides the potential for re-rating and presents an attractive opportunity to us as contrarian investors.”

Lloyds’ results were the last for a full year to be released under outgoing chief executive Antonio Horta-Osorio, whose replacement Charlie Nunn will start in post on August 16, the bank announced yesterday. Mr Nunn is currently global chief executive of wealth and personal banking at HSBC.

Mr Horta-Osorio departs in April following a 10-year spell that saw Lloyds return to private hands following its multi-billion-pound bailout during the financial crisis.

The level of pay awarded to the Portuguese has at times drawn criticism from shareholders.

He found himself at the centre of controversy in May 2019 when it emerged his pay included a pension allowance of 46% of salary, compared with a maximum of 13% for other employees. It was reported at the time that he had volunteered reducing his pension allowance to 33% in February of that year. According to Lloyds’ latest annual report, published yesterday, Mr Horta-Osorio received total remuneration of £3.44m for 2020, down from £4.4m in 2019 and £6.5m in 2018. He received less in pension allowance and bonuses for 2020 compared with 2019.

Lloyds’ annual report for 2020 signals Mr Horta-Osorio’s pension allowance was equal to 15% of base salary.

Mr Nunn will receive a remuneration package worth more than £5.5m, which includes a basic salary of £1.125m, bonuses and pension allowance equal to 15% of his salary.

Lloyds said yesterday that it has provided loans worth more than £12bn to businesses through various government-backed coronavirus support schemes. It said it has granted 1.3 million payment holidays to retail customers and 34,000 capital repayment holidays to businesses.

Mr Horta-Osorio said: “Looking forward, significant uncertainties remain, specifically relating to the coronavirus pandemic and the speed and efficacy of the vaccination programme in the UK and around the world. I remain confident that the group’s clear purpose, unique business model, significant competitive advantages and the customer-focused evolution of our strategy we have announced will ensure that the group is able to Help Britain Recover and in so doing, help transition to a sustainable economy.”

Michael Hewson, chief market analyst at CMC Markets, said: “All in all today’s numbers from Lloyds appear to mark a nice postscript for outgoing CEO Antonio Horta Osorio, with the dividend resumed, and barring any mishaps a bank that looks well set to take advantage of a summer recovery in the UK economy.”

Shares closed up 0.11p at 39.34p.