Lloyds records another decent quarter, cites inflation risks

The performance of the Lloyds Bank share price since the pandemic first broke across the shores of the UK economy has been one of life’s big mysteries, given it is still well below the levels seen pre-pandemic, and yet the bank continues to return numbers which are much improved on where they were pre-pandemic.

When the bank reported its numbers back in February full year profits came in at £6.9bn, slightly below expectations of £7.2bn.

The end of year shortfall was down to a surprise increase in operating costs which rose above £2bn in Q4, up from £1.87bn in Q3, which sent the shares falling to one-year lows, though most of this decline was probably down to concerns over Russia’s invasion of Ukraine.

Since then, we’ve seen a modest rebound however the last few days have seen the shares slip back again, over concerns about how banks will contend with a tougher economic outlook and customers getting into financial difficulties through higher prices. 

Nonetheless today’s Q1 update has seen a similarly resilient performance with statutory profit after tax coming in at £1.2bn, a modest fall from the same quarter last year, pushing the shares to a three-week high, but crucially they are struggling to overcome the 200-day MA which has so far capped the rebound from the March lows.

One of the reasons for the slight decline was a £177m impairment, compared to a £360m credit which boosted last year’s number. The impairment was in relation to possible impacts related to higher inflation.

Operating costs also rose modestly from a year ago, to just shy of £2.1 bn, although they were down on Q4.

Banking net interest margin has also continued to improve, rising to 2.68% up from 2.49% a year ago.

On the outlook Lloyds said it was boosting its guidance on net interest margin to 2.7% and raising the return on tangible equity to above 11%.

In respect of the wider business loans and advances to customers rose £3.2bn to £451.8bn, while customer deposits rose £4.8bn.

Of course, as we look to Q2 the major risks to Lloyds prospects are higher prices across the board, with the bank warning about the persistency of higher inflation on its customers, going on to say that they are proactively engaging with customers who may be particularly vulnerable.