Customer Behaviour

Lloyds Banking Group has reported a rise in profits in the three months to the end of March, despite a “challenging” environment. It said pre-tax profits doubled from a year ago to £1.3bn in the first quarter, although last year’s figure included a hefty one-off cost.

Lloyds boss Antonio Horta-Osorio said its “simple and low risk” business was able to cope with difficult trading. The bank is expected to be fully back in private ownership later this year.

The government now holds less than 2% of Lloyds – down from 43.4% when it was bailed out by the taxpayer at the height of the financial crisis.

Analysts said the firm was exposed to record low interest rates, which make it harder for banks to increase profits, and the health of the UK economy.

The bank expects interest rates to remain unchanged in 2017, Mr Horta-Osorio told reporters.

Health of economy

Lloyds, the UK’s biggest mortgage lender, said the economy was still strong and was expected to grow at a similar rate to last year, at about 2%.

Mr Horta-Osorio also said underlying consumer borrowing was still less than it was before the financial crisis.

Neil Wilson, an analyst at ETX Capital, said: “Lloyds’ resilience is based a lot on the continued health of the UK economy, but we must factor some downside risks, particularly around credit risks.”

Regulators have warned about rising unsecured debt, but despite the risks, “Lloyds remains the star of the UK banking show,” Mr Wilson said.

Underlying profit was 1% higher at £2.1bn, beating analysts’ expectations. The results pushed Lloyds’ shares about 3% higher on Thursday.

Lloyds does not have an investment bank and focuses instead on “plain and simple, vanilla banking”, said Philip Augar, an author and banking expert.

“If they do it right, if they don’t get too greedy, if they behave themselves, it should be a wonderful business,” he said.

‘Sins of the past’

Lloyds’ statutory profit was boosted by the absence of last year’s £800m charge from its controversial move to buy back expensive bonds from investors.

Mr Augar told the BBC: “This time last year they had to disclose a horrible loss due to volatility in their own bond prices.

“There’s none of that this year, [but] they still had to make another provision for about half a billion pounds for sins of the past, PPI [payment protection insurance] and things like that.”

Lloyds recently set aside an extra £350m to cover mis-sold PPI claims and £100m to cover compensation for victims of fraud by former HBOS staff.

Mr Horta-Osorio said on Thursday that the victims of the fraud would be “fairly, swiftly and appropriately compensated”.


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