Lloyds profit jumps despite UK outlook, motor finance provision

By Iain Withers and Lawrence White

LONDON (Reuters) -Lloyds Banking Group reported a 57% jump in profit for 2023 on Thursday, as Britain's faltering economy and a charge for potential costs from a regulatory review into motor finance failed to put a major dent in its performance.

Lloyds reported pre-tax profit of 7.5 billion pounds ($9.5 billion) for the 12-month period, up from 4.8 billion pounds the prior year and slightly above the 7.4 billion pounds average of analyst forecasts compiled by the bank.

The group - which also spans the Halifax, Bank of Scotland and Scottish Widows brands - announced a final dividend of 1.84 pence and a share buyback of 2 billion pounds.

As Britain's biggest domestic lender, Lloyds' fortunes are inextricably linked with those of the wider economy - which official data showed this month entered a recession in the second half of 2023.

But like its rivals, Lloyds has enjoyed a huge boost to lending revenues from higher Bank of England interest rates - which underpin borrowing costs - while containing losses from potential bad loans as more borrowers feel the pinch.

Lloyds set aside 308 million pounds to cover potential unpaid loans, well down on 1.5 billion pounds the prior year.

The bank also set out muted performance guidance for the year ahead, amid tougher competition for mortgage and deposit pricing.

The bank reported a net interest margin - a key measure of underlying bank profitability - of 2.98% in the final three months of the year, down on 3.08% in the third quarter.

Lloyds said its NIM was forecast to fall to 2.9% this year. That in turn drove guidance for returns for 2024 to just 13%, down from 15.8% in 2023 before recovering to 15% by 2026, the bank said.

PROVISION

One potential major risk ahead for Lloyds lies in an ongoing regulatory review into suspected historic overcharging by car finance lenders - a market in which the bank is a big player through its subsidiary Black Horse.

Lloyds set aside 450 million pounds to cover possible redress. Some analysts estimate the bank's potential costs could rise as high as 2 billion pounds.

Analysts at RBC have estimated the sector's total compensation bill could reach 16 billion pounds, which would make it the costliest banking scandal since mis-selling of payment protection insurance (PPI).

Lloyds also announced it had appointed former Banco Santander executive Nathan Bostock to its board, after deputy chairman Alan Dickinson said he would step down on completing nine years of service.

Bostock was chief executive officer of the Spanish lender's UK arm from 2014 until 2022, and before that served briefly as finance director for RBS.

($1 = 0.7907 pounds)

(Reporting by Iain Withers and Lawrence White, Editing by Sinead Cruise)