Lloyds offers customers help as concern mounts over inflation

The bank delivered a gloomy assessment of the economy, gripped by a deepening cost-of-living crisis, as it reported a 14 per cent fall in first-quarter profits to £1.6 billion – ahead of the £1.4bn forecast by analysts.

Profits dropped as Lloyds made a £177 million provision for potential bad debts as households contend with steep rises in fuel bills and soaring inflation. The charge marked a turnaround from the first-quarter stage of last year, when the bank released £360m of provisions it had made for bad debts linked to the pandemic.

But overall it had been a strong first showing for Lloyds in the first quarter, which saw income boosted by rising interest rates (increased by the Bank of England to 0.75% in March following rises to 0.1% to 0.25% in December and then to 0.5% in February) to combat surging inflation), and the continued recovery in customer activity.

Lloyds reported that net income increased by 12 per cent over the opening quarter to £4.1 billion, with loans and advances to customers increasing by £3.2bn to £451.8bn. This included continued growth in the bank’s open mortgage book, which increased by £1.7bn to £295bn. Customer deposits grew by £4.8bn to £481.1bn, reported Lloyds, which reported that bank net interest margin had increased to 2.68%, compared with 2.49% in the first quarter of 2021.

Despite concerns over the outlook, the bank said that asset quality “remains strong”, noting that higher inflation had been offset by stronger house prices and unemployment. And it raised its guidance for banking net interest margin and return on tangible equity for 2022.

Russ Mould, investment director at stockbroker AJ Bell, said: “Lloyds’ first quarter update reveals a lot about the state of the UK economy. The country has been getting back on its feet, which is reflected by an increase in lending and savings deposits for Lloyds. However, the outlook is less than rosy.

“It’s serious when a bank talks about proactively contacting customers that could be facing financial troubles to offer help and guidance.

“This is quite a different tone from a company whose key messages were recently focused on expansion into wealth management – i.e. helping the rich to look after their money.

“It’s a reminder that Lloyds’ customer base is broad and that having a caring mentality is the right approach, even if it doesn’t necessarily result in earnings growth. Banks cannot alienate a chunk of their customer base simply because they don’t match the target market for future growth. Lloyds’ roots lie in helping people of all types and this inclusive approach is fundamentally correct.”

Susannah Streeter, senior investment and market analyst at Hargreaves Lansdown, said: “For banks there is always the risk that a deterioration in economic health could hurt consumer loans businesses and see bad debt pile up, but for now Lloyds Bank is galloping away from these worries.

“Despite the uncertain terrain ahead, it’s seen limited impact from the tougher outlook, with the housing market still super-buoyant and unemployment low.”

Ms Streeter added: “There are worries that at some point mounting rates could knock buyer sentiment, but with rents high and mortgages still cheap historically, it seems there is still plenty of appetite to move onto and up the housing ladder.”

Charlie Nunn, chief executive of Lloyds, said: “Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation. We are proactively contacting customers where we feel they may need assistance and will continue to help with financial health checks and other means of support. We encourage customers, where affected, to get advice early and talk to us.”

Shares in Lloyds closed down 1.1% at 46.39p.

Meanwhile, TSB confirmed last night that it had appointed Glasgow-born Robin Bulloch as its permanent chief executive. Banking veteran Mr Bulloch, who previously held senior roles with Lloyds, Royal Bank of Scotland and Tesco Bank, had been holding the role on an interim basis since the departure of Debbie Crosbie to Nationwide in December.