November 3, 2021
3 min read
Lloyds Banking Group reports better than expected profits thanks to a booming mortgage market.
The UK’s largest mortgage lender, Lloyds Banking Group, has reported that its profits have almost doubled in the third quarter of the year, thanks to a booming mortgage market and the UK’s faster than expected economic recovery. In the latest quarter (June – September 2021), Lloyds’ home loans increased by £2.7bn, bringing its mortgage lending to £15.3bn in the nine months leading to September – the strongest rise at the bank in over a decade. Lloyds particularly benefited from the higher demand for larger properties during the pandemic and consumers’ last-minute efforts to utilise the stamp duty holiday, which ended in September 2021.
The UK economy has boasted a speedy recovery with pandemic restrictions easing and this has boosted Lloyd’s performance as it was able to release £84m that had been set aside for possible loan defaults at the peak of the COVID-19 pandemic. William Chambers, Lloyd’s chief financial officer, confirmed that bankers could expect larger bonuses in the Spring.
The banking group’s chief executive, Charlie Nunn commented that such increased profits also creates “significant opportunities for Lloyds to develop and grow.” He also added that as it moves forward into the last quarter of 2021, he alongside the board and group executive committee are developing the “next evolution of our strategy and longer-term priorities.” Nunn is expected to announce the bank’s long term strategic plan in the new year.
Lloyds Banking Group joins several UK banks reporting boosted profits and beating analysts’ expectations in the third quarter of 2021. This includes HSBC, which reported a 74% rise to $5.4bn this week and Barclays, which almost doubled profits to £2bn and saw its share prices return to pre-Covid levels.
With the banking sector’s increase of bumper profits, executives suggest that the worst of the COVID-19 crisis is over in terms of loan losses. Had the UK economy not recovered, Lloyds Banking Group would be facing approximately £411m in impairment charges for 2021 so far. Now, however, it expects releases of provisions for bad loans to exceed new impairments this year.
There are still concerns about a second wave of the virus. Economic concerns are especially valid for Lloyds as its economic fate is closely linked to the wider UK economy. This is because, unlike Barclays or HSBC, it does not boast a large investment bank or international business.
Lloyds Banking Group CEO, António Horta-Osório, confirmed that “huge uncertainties remain and the economy has lately been decelerating”. However, he also noted that two of Lloyd’s most important variables for business — unemployment and property prices – are holding up stronger than expected. Even if there has been a recent economic declaration, commentators believe that inflation could aid in supporting house price growth and mortgage balances.
Such a bright economic outlook indicates lower losses on loans and lower impairments and creates many opportunities for Lloyds’ growth, including through “disciplined investment.” For instance, the banking group has taken an interest in wealth management and insurance and more recently announced it will be moving into the private rental sector. These efforts will allow Lloyds to diversify its sources of income and push towards long-term growth.
Report written by Goodness Asaolu
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