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Lloyds posts 64% fall in impairment charges 2 November 2015

Bad debt losses at Lloyds Banking Group have fallen 64 per cent to £336m in the nine months to September 2015, compared to the same period in 2014.

In a management statement Lloyds said the year-on-year decrease from £943m was driven by reductions in the amount of loans in run-off, along with improvements “in all banking divisions”.

The bank said it was progressing with a low-risk business model and while growth has been coming through in its SME lending and car finance business, the results show above all, movements to downsize and de-risk.

The group’s bad debt charges however, did increase from quarter to quarter. Impairments rose from £21m in the second quarter to £157m for the third quarter.

But Lloyds added that the quality of the loan portfolio continues to improve”. It said that impaired loans now stand at 2.1 per cent of total advances, down from 2.9 per cent at the end of last year, a factor driven largely by a recent sale of Irish commercial loan portfolios.

On the group’s general performance, chief executive António Horta-Osório said: As a UK retail and commercial bank, we continue to support and benefit from a robust UK economy, with current low unemployment levels, increased house prices, an increase in consumer spending and a reduction in household debt, providing a positive backdrop to the group’s future prospects.

“We are well placed to respond to the evolving regulatory environment as well as the short-term challenges of low interest rates.”

He added: “Our financial performance continues to demonstrate the strength of our business model, with underlying profit up by six percent to £6.35bn in the nine months to the end of September. This was largely driven by a significant reduction in impairment charges and lower costs.”

The group’s actual profit after tax was £1.61bn compared to £1.39bn for the same period in 2014.

Conduct issues
As expected, there were provisions for legacy and conduct issues littered throughout the statement.

The total set aside for payment protection insurance (PPI) claims was £1.9bn for the nine months to September 30, compared to £1.5bn for the same period in 2014.

Lloyds also incurred another £100m charge in the third quarter relating to potential claims and remediation for various products sold through the branch network. This charge also related to various issues highlighted by regulatory investigations.

This extra amount brought the total charge for conduct provisions in the first nine months of 2015 to £535m.

The group also has a provision of around £175m for potential problems in its packaged accounts, though it has seen a drop off in complaint levels about these accounts.

General business
For UK consumers, Lloyds remains the largest lender to first-time buyers, having provided about one in four mortgages, or £7.7bn of gross lending to 55,000 customers.

The business is also building momentum in the rate of decreasing its level of public ownership.

The government has now reduced its holding to less than 11 per cent, and returned about £15.5bn, on top of the dividends paid so far in 2015, to the taxpayer.

By Marcel LeGouais



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