(Alliance News) - Lloyds Banking Group PLC on Thursday reported a sharp drop in quarterly profit, as it recognised a large credit impairment to cover the rising number of bad loans.
In three months to September 30, pretax profit slumped 26% to GBP1.51 billion from GBP2.03 billion.
Net income was up 13% to GBP4.59 billion from GBP4.08 billion, as underlying net interest income rose 19% to GBP3.39 billion from GBP2.85 billion, but other income was down 4% to GBP1.28 billion from GBP1.34 billion.
Shares in Lloyds fell 1.7% to 41.85 pence each in London on Thursday morning.
The bank set aside GBP668 million in the quarter as underlying credit impairments to handle the fallout from increased bad loans, reversing from the GBP119 million gain recorded the year prior.
Lloyds's CET1 ratio - a key measure of a bank's financial strength - rose to 15.0% at the end of September from 14.7% at June 30.
In the first nine months of the year, net interest income jumped 56% to GBP11.06 billion from GBP7.07 billion. However, this was offset by a loss in other income of GBP17.98 billion, swung from positive income of GBP20.01 billion.
This led to a loss in total income of GBP6.92 billion, compared to positive income of GBP27.09 billion. Pretax profit fell to GBP5.17 billion from GBP5.93 billion, as the firm recognised an impairment charge of GBP1.06 billion compared to a credit of GBP846 million a year before.
Lloyds's banking net interest margin improved to 2.98% in the third quarter from 2.55%. Looking ahead, the bank now expects its annual banking NIM to be greater than 2.90%, which is higher than the over 2.80% expected in July.
Lloyds said its return on tangible equity is still expected at 13% in 2022, unchanged from July. It was 11.9% in the third quarter, down from 14.5% a year ago.
Asset quality ratio is expected to be about 30 basis points. At the bank's half-year results the ratio was guided at below 20 basis points. The asset quality ratio is the ratio of non-performing assets to total equity plus loan loss reserves.
Shore Capital said the Lloyds third-quarter pretax profit of GBP1.51 billion missed market consensus of GBP1.84 billion.
"Guidance sees full year NIM upgraded which is broadly offset by a downgrade to the impairment ratio, although capital generation is now expected to be better than previously expected," said analyst Gary Greenwood.
"While the strengthening of provisions is prudent given the deterioration in the economic outlook, and observed asset quality remains strong, we think the market may be spooked by the miss to expectations and downgraded guidance in this respect."
"In February we announced an ambitious new strategy. While the operating environment has changed significantly since then, our customer focus remains unchanged. We continue to execute against our strategic goals, based on our objectives of transforming the business, while generating a stronger growth trajectory and enabling the group to deliver higher, more sustainable returns," said Chief Executive Charlie Nunn.
By Elizabeth Winter; elizabethwinter@alliancenews.com
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