By Iain Withers and Sinead Cruise
LONDON (Reuters) - Lloyds Banking Group's <LLOY.L> first quarter pretax profit was all but erased by provisions against expected bad loans due to the coronavirus pandemic, although Britain's biggest bank said on Thursday it was well placed to help with a recovery.
Viewed as a bellwether for the wider British economy as the country's largest provider of home loans and one of its biggest business lenders, Lloyds reported pre-tax profit of 74 million pounds, down from 1.6 billion pounds the previous year.
HSBC and Barclays have also set aside billions of pounds to cover an expected spike in bad loans due to the coronavirus outbreak, with state-backed RBS expected to follow suit on Friday.
"Despite the outlook remaining challenging and uncertain, we are well placed to play our part and help Britain recover from this crisis," Lloyds Chief Executive Antonio Horta-Osorio said.
The profit was sharply below the 863 million pounds average of analysts' forecasts compiled by the bank due to a 1.4 billion pounds ($1.75 billion) loan impairments charge.
Shares in Lloyds were down 9% at 1450 GMT, compared with a 3% fall in the FTSE 100 <.FTSE> index.
Lloyds' results would have been even worse but for a tax credit of 406 million pounds in quarter, which the bank said was due to lower profits and an uplift from deferred tax assets.
The bank also warned it expects further impairments, particularly if the British economy shrinks by more than its base case of 5%. The Office for Budget Responsibility, Britain's official forecaster, has pencilled in a 13% decline in 2020.
And forecasts on various performance metrics set out in February, which included an increase in return on equity to 12-13%, were no longer valid, Lloyds said.
Lloyds, which like other lenders scrapped its proposed 2019 dividend payout this month at the behest of Britain's financial regulator, said its board will decide on any future distributions at year-end 2020.
"Despite there being no income for investors in the immediate future, the bank is on an undemanding valuation and its likely ability to weather a crisis such as this provides some longer term comfort," Richard Hunter, Head of Markets at Interactive Investor, said.
Britain's banks have faced criticism for their slow progress in supplying 330 billion pounds of state-guaranteed loans to businesses buckling under a near shutdown of Britain's economy.
Lloyds said it had provided 880,000 loan repayment holidays across all its product lines and issued 3,752 loans with an aggregated value of 500 million pounds via the Coronavirus Business Interruption Loan Scheme (CBILS).
But Lloyds is still lagging RBS <RBS.L>, HSBC <HSBA.L> and Barclays <BARC.L>, despite being Britain's biggest provider of loans to small companies.
Lloyds has a 24% market share of relationships with small business borrowers, data from business insights provider RFi Group shows, while RBS, with a 14% share, has provided 1.4 billion pounds of CBILS loans.
A Lloyds spokesman said the bank had a 19% share of the SME lending market.
Horta-Osorio told reporters that Lloyds was stepping up its support for businesses, but said companies preferred other relief measures such as capital repayment holidays and overdraft extensions, by a ratio of 10:1.
"You have to give customers what they want," he said, adding that the launch of a scheme offering loans 100% guaranteed by the government would help plug a gap for small firms.
(Additional reporting by Lawrence White; Editing by Jane Merriman and Alexander Smith)