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Lloyds Banking Group has swung back to profit and reinstated dividend payments, after receding Covid risks helped improve the UK’s economic outlook.
Britain’s biggest retail bank said pre-tax profits across the group soared to £2bn in the three months to the end of June, in a sharp turnaround from the £676m loss it reported during the same period in 2020 when it put aside billions of pounds to cover potential defaults linked to the pandemic. Analysts had been expecting Lloyds, which owns the Halifax and Bank of Scotland brands, to report profits of £1.2bn for the quarter.
The bank said an improving economic outlook meant it could release £333m from the funds it had set aside to cover possible defaults on lending to customers. It had set aside £2.4bn last year to cushion potential bad debts incurred by businesses and households coming under pressure amid the fallout from Covid-19.
“The group has delivered a solid financial performance with continued business momentum, bolstered by an improved macroeconomic outlook for the UK,” Lloyds’ interim chief executive, William Chalmers, said.
Against a backdrop of rising economic growth, Lloyds upgraded its full-year profit targets, saying it expected its net interest margin – a measure of profit based on what a bank earns from loans, versus interest it pays on deposits – would be 2.5%. That is slightly higher than the 2.45% previously forecast.
Reflecting a boom in the UK property market this year, the banking group said mortgage lending rose by £6.6bn, or 2%, since the end of March, taking the overall size of its home loan portfolio to about £300bn despite intense competition between lenders.
Despite the improving outlook for the British economy, Chalmers cautionedthat “while we are seeing clear progress in the vaccine rollout and emergence from lockdown restrictions, the coronavirus pandemic continues to have a significant impact on the people, businesses and communities of the UK”.
However, the bank said its overall performance would enable it to reintroduce dividend payments worth 67p per share, after a temporary ban on payouts imposed by the Bank of England at the start of the pandemic. The restrictions were partially lifted in January, and fully removed earlier this month.
Meanwhile, Lloyds put aside nearly £100m for staff bonuses, which were scrapped last year as the pandemic hit profits, and announced one of its biggest acquisition since returning to full private ownership in 2017 with the takeover of the wealth management platform Embark.
Lloyds, which also owns the Scottish Widows pensions brand, announced it was buying the Embark, a digital platform for retirement savings in a takeover worth about £390m. The platform will come with £35bn worth of assets under administration, managed on behalf of Embark’s existing 410,000 customers.
“Every year over £10bn in assets under managements leaves Lloyds … to be managed by other wealth providers,” Chalmers said, “and we really think there’s no reason why that should continue. We should be able to offer our customers a very competitive product and Embark is the way to ensure such a huge opportunity.”