(Alliance News) - Lloyds Banking Group PLC on Wednesday reported a sharp drop in annual profit, but was able to beat market expectations, as the lender's banking margins took a hit from lower interest rates which, in turn, crushed its income.
The lender also declared a final dividend of 0.57 pence, the maximum allowed under the current guidelines in the UK, and outlined its intention to resume progressive and sustainable ordinary dividend policy in 2021.
Lloyds's CET1 ratio ended 2020 at 16.2%, up from 13.8% at the end of 2019.
For 2020, the blue chip high-street lender's pretax profit sunk 72% to GBP1.23 billion from GBP4.39 billion, but was able to outperform market expectations of profit of GBP905 million.
Driving the drop in profit was a sharp increase in impairments, rising to GBP4.25 billion from GBP1.29 billion in 2019. Market consensus had predicted the charge at GBP4.71 billion, however.
Net income slumped 16% to GBP14.40 billion from GBP17.14 billion, after a 13% drop in net interest income to GBP10.77 billion from GBP12.38 billion.
Despite the stinging fall, Lloyds net income was also ahead of market consensus - which was predicted at GBP14.24 billion.
"The drop in income reflected lower rates, actions taken to support customers and changes in asset mix, including growth in quality UK mortgages and lower levels of unsecured lending," Lloyds explained.
Income was squeezed as its banking net interest margin worsened in 2020 to 2.52% from 2.8% in 2019 - but, once again, bettered market expectations, which forecast Lloyds's NIM at 2.50%.
The bank's loan book ended 2020 at GBP440.2 billion, flat on the year before. Lloyds noted GBP7.2 billion growth in its open mortgage book and UK government-backed lending of GBP11.1 billion was able to offset lower balances in unsecured Retail, Corporate and Institutional lending.
Customer deposits increased to GBP451 billion from GBP412 billion.
Operating costs dropped to GBP7.59 billion from GBP7.88 billion but, owing to the significant profit drop, its cost-to-income ratio worsened to 55.3% from 48.5%.
Outgoing Chief Executive Antonio Horta-Osorio said: "The impact of the coronavirus pandemic on the people, businesses and communities in the UK and around the world in 2020 has been profound. We remain absolutely focused on working together with all of our stakeholders to support our customers and ensure a sustainable recovery."
Horta-Osorio is leaving Lloyds on April 30 to become chair of Credit Suisse Group AG. Previously, he was intending to leave Lloyds by the end of June 2021.
Lloyds on Wednesday confirmed HSBC Holdings PLC's Wealth & Personal Banking head Charlie Nunn will become CEO on August 16. Chief Financial Officer William Chalmers will be interim-CEO after Horta-Osorio departs and Nunn comes in.
"Looking forward, significant uncertainties remain, specifically relating to the coronavirus pandemic and the speed and efficacy of the vaccination programme in the UK and around the world. I remain confident that the group's clear purpose, unique business model, significant competitive advantages and the customer focused evolution of our strategy we have announced will ensure that the Group is able to Help Britain Recover and in so doing, help transition to a sustainable economy," Horta-Osorio added.
For 2021, Lloyds is guiding for its net interest margin to grow to above 240 basis points, and operating costs to reduce further to about GBP7.5 billion.
The bank also expects improved profitability in 2021 with a statutory return on tangible equity of between 5% and 7% - which is up from 2.3% in 2020.
By Paul McGowan; paulmcgowan@alliancenews.com
Copyright 2021 Alliance News Limited. All Rights Reserved.
.jpg)
