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Lloyds profits beat forecasts but customer lending and deposits slow

Having seen how brutally Barclays share price was punished yesterday for downgrading its net interest margin, all eyes turned to the Lloyds Banking Group share price which was similarly punished in anticipation of a similar outcome today.

Yesterday the Lloyds Banking Group share price fell to a one year low, having fallen over 20% from its February highs just above 54p, despite consistent returns over the course of the last 5-years, apart from 2020 when it had to set aside quite a large amount in respect of Covid related provisions.

Today’s Q3 trading statement has seen the bank report statutory profit before tax of £1.86bn, a sizeable improvement on last year’s £576m, pushing year to date profits up to £5.73bn, yet after an initial push higher the shares have slipped back into negative territory.

Underlying net interest income rose 1% to £3.44bn with net interest margin coming in as expected at 3.08%, up 10bps from a year ago, but down from 3.14% in Q2. For the year-to-date underlying net interest income is up 10% to £10.45bn.

Impairments came in below forecasts at £187m, a sharp drop from the £668m the bank set aside in the same quarter last year. This pushed total impairments for the year up to £849m.

It was notable in yesterday’s numbers from Barclays that there was a sharp drop in customer deposits and we’ve seen a similar pattern today with Lloyds with a 3% fall from the same quarter last year, to £470.3bn, although most of that appears to have come about at the end of last year, given that the figure at the end of 2022 was £475.3bn. It would therefore appear that the outflow has slowed in the last 9 months, while we saw a modest pickup in Q3.

Loans and advances to customers have also slowed, falling to £452.1bn, although there was a modest pickup in Q3, while lending to small and medium businesses also slowed.

Despite the gradual slowdown in NIM over the last 3 quarters Lloyds maintained its full year guidance of NIM of 3.1%. Despite maintaining its guidance here, unlike Barclays, Lloyds shares have come under pressure most likely on the basis that we’ve hit peak NIM, and the line of least resistance is down. This appears to be borne out in the quarterly numbers for NIM, 3.22% in Q1, 3.14% in Q2 and 3.08% in Q3.

Operating costs in Q3 remained steady at £2.24bn, the same as in Q2, with full year guidance of £9.1bn maintained.

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