Lloyds has the biggest possible exposure to car loans regulatory action of the UK’s retail banks. The possibility of regulatory action relating to alleged inflated prices for car loans deflects attention away from strong full year earnings. It has set aside a provision of £450m, considerably less than analysts had forecast.
Lloyds CEO Charlie Nunn, said: “The actual amounts could be higher or lower than the provision that we’ve taken. We just have to see how things develop over the course of the coming months.”
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Statutory profit after tax for fiscal 2023 rises by 41% to £5.5bn. This is boosted by a rise in the net interest margin by 17 basis points to 3.11%. Loans and advances to customers inch down by £5.2bn to £449.7bn. Customer deposits of £471.4bn reduce by 1%, including an £11.3bn reduction in retail current accounts. This is partly offset by a combined increase across retail savings and wealth of £8.9bn.
The Lloyds’ dividend rises by 15%y-o-y to 2.76 pence per share. The board has also announced its intention to implement an ordinary share buyback programme of up to £2.0bn.
Less positive metrics include a 3.6 percentage point rise in the cost-income ratio to 54.7%.
For fiscal 2024, Lloyds forecasts a banking net interest margin of greater than 290 basis points. It estimates operating costs of around £9.3bn from £9.1bn in fiscal 2023 and a return on tangible equity of around 13%.
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By GlobalDataLloyds: room for upside beyond current consensus
Matt Britzman, equity analyst, Hargreaves Lansdown, said: “Lloyds delivered a decent set of results and a confident medium-term outlook. On the FCA review, the £450m provision was less than some had feared. But there will be question marks around how Lloyds has come to that figure. Lloyds has been honest in saying the outcome of the review is largely unknown. What we do know is that Lloyds is one of the more exposed banks should the FCA deem there was misconduct and customer loss.
“UK domestic banks are unloved but there’s reason to be optimistic, especially with valuations sitting where they are. Performance has clearly peaked, but there are several tailwinds yet to play out that could give room for upside beyond current consensus. Loan default levels remain low and with the return of real wage growth, plus a stabilising housing market, consumers should remain resilient. At the same time, banks are seeing easing conditions in the mortgage market and what looks to be a peak in terms of consumers shifting to higher cost savings accounts. As these tailwinds ease, the power of the structural hedge can come through.”
