The country’s biggest mortgage lender posted pre-tax profit of 1.5 billion pounds for July-September, compared with 2 billion pounds a year earlier and below analyst forecasts
Lloyds Banking Group is bracing for a downturn in Britain’s housing market and a rise in unpaid loans as inflation squeezes borrowers, leading it to report a slide in quarterly profit on Thursday.
Lloyds downgraded its economic forecasts to reflect a worsening outlook, and is now predicting the economy will shrink 1% next year and that house prices will fall 8%.
The country’s biggest mortgage lender posted pre-tax profit of 1.5 billion pounds for July-September, compared with 2 billion pounds a year earlier and below analyst forecasts.
The fall was largely down to setting aside an additional 688 million pounds to cover potentially soured loans as customer budgets come under pressure.
Lloyds shares fell 4% in early trading and were last down 2%, against a broadly flat benchmark FTSE index.
The mixed update from Lloyds, with profits sliding and bad loans charges rising while the bank nonetheless increased its guidance for several key performance metrics, showed the unusual environment Britain’s banks are now in.
Rising central bank interest rates aimed at combating inflation also boost banks’ income, but those same pressures of inflation and higher rates on mortgages are squeezing household budgets, risking defaults on loans later down the line.
Rivals including Barclays and HSBC reported robust results this week, but investors are wary the rising cost of living will bite long term.
Analysts have argued Lloyds could be particularly vulnerable to any increase in loan defaults because of its huge mortgage book and significant share of the credit card market.
To a large extent, Lloyds can’t control the external forces that govern its customers’ behaviour, but its particular exposure to traditional lending, especially mortgages, puts it in the firing line when conditions sour, said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.
