Lloyds Banking Group reported a profit rise of 23% to £1.6 billion in the first quarter, but bad loan impairments doubled to £258 million.
Net income was up 4% to £4.3 billion, as chief executive CEO António Horta Osório pointed to the resilience of the UK economy.
‘The UK economy continues to be resilient, benefiting from low unemployment and continued GDP growth. Asset quality remains strong with no deterioration seen across the portfolio. We expect the economy to continue to perform along these lines during 2018,’ said
The group also reported restructuring costs of £138 million as it continues to reduce staff headcount and it ‘non-branch property portfolio’.
In a brief quarterly stock market update, Osório added: ‘In the first three months of 2018 we have again delivered strong financial performance with increased profits and returns, a significantly reduced gap between underlying and statutory profit and a strong increase in capital. These results continue to demonstrate the strength of our business model. In March, following our 2017 results and dividends announcement, we commenced our share buyback programme of up to £1 billion.
‘In February we announced our ambitious strategy to transform the Group into a digitised, simple, low risk, customer focused UK financial services provider. We have made a strong start to 2018 and have begun implementing the strategic initiatives which will further digitise the Group, enhance customer propositions, maximise our capabilities as an integrated financial service provider and transform the way we work.’
The bank booked in another £90 milllion of payment protection insurance (PPI) costs, which Hargreaves Lansdown senior analyst described as a 'tailwind', as the Financial Conduct Authority's August 2019 PPI cut-off looms.
Lloyds has made a good start to 2018, thanks to a growing top line and lower PPI costs.
'Rising interest rates are positive for the banking sector, and Lloyds is also benefiting from the purchase of the MBNA credit card portfolio, as this kind of debt yields significantly more for banks than mortgage borrowing, albeit with greater risk. That said, bad loans remain well contained at Lloyds, as unemployment and interest rates are near historical lows, which means most people are able to service their debts adequately,' he said.
'PPI costs are much lower than last year, and this is a theme we can expect to continue for the UK banks. As the largest source of compensation, Lloyds also stands to be the biggest beneficiary of PPI disappearing in the rear-view mirror.
'It’s not entirely out of the woods yet though, with another 18 months until the FCA claims deadline, and we wouldn’t be entirely surprised to see further costs along the way, as compensation applications ramp up the closer we get to the cut-off date in August 2019.'