By Lars Mucklejohn
Lloyds Banking Group has reported an uptick in annual profits on the back of higher interest rates while making a £450m provision for potential compensation payouts from an FCA motor finance probe.
The group also announced it was planning a £2bn share buyback, which together with a 1.84p per share final dividend would see £3.8bn returned to shareholders.
Britain’s largest domestic banking group – which owns Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows – posted a pretax profit of £7.5bn for 2023, up 57 per cent from £4.8bn in 2022 and an all-time high for the lender. Analysts had expected a figure of £7.4bn.
The bank’s net interest income rose to £13.8bn in 2023, from £13.2bn in 2022. However, its net interest margin narrowed by 0.1 per cent to 2.98 per cent between the third and fourth quarters as the group faced pressure to offer savers better deals and interest rates have likely peaked.
Lloyds posted loan impairments of £303m in 2023, down from £1.5bn in 2022.
It explained that the year-on-year decrease included “a significant write-back following the full repayment of debt from a single name client, in addition to a credit from modest revisions to the group’s economic outlook compared to the deterioration in the economic outlook captured last year.”
Investors have been clamouring for more details on Lloyds’ exposure to an FCA review into now-banned motor finance commission arrangements that has been likened to the PPI scandal.
Today the bank confirmed it made a £450m provision for the potential impact of the review.
Analysts have estimated that the auto lending industry could be on the hook for up to £16bn in compensation payouts from the FCA’s probe.
RBC estimates that Lloyds, the owner of the UK’s largest auto lender Black Horse, could be on the hook for up to £2bn in compensation but flagged that it would not know the size and scope of the issue until at least September.
Lloyds saw operating costs of £9.1bn in 2023, up five per cent year-on-year but in line with guidance. It expected operating costs to rise to around £9.3bn in 2024, reflecting severance charges and inflation.
The bank confirmed last month that it had cut 1,600 jobs across its branch network in a bid to reduce costs and transition to online banking.
Chief executive Charlie Nunn said on Thursday: “The group delivered a robust financial performance, meeting our 2023 guidance, driven by income growth, cost discipline and strong asset quality. This performance enabled strong capital generation and increased shareholder distributions.
“2023 was a critical year in building towards the ambitious strategy we announced two years ago, as we look to grow our business and deepen relationships with our customers. As demonstrated in our recent strategic seminars, we have made significant progress and are on track to meet our 2024 and 2026 strategic outcomes, helping us build towards higher and more sustainable returns.”
