Lloyds lifts outlook as interim income surges on rising rates

Lloyds Bank lifted annual guidance after a rise in net income for the half-year due to rising interest rates, and despite a fall in pre-tax profits.

The lender on Wednesday, said net income surged 65% to £7.2bn for the six months to June 30. Pre-tax profits fell 6% to £3.6bn, after the previous year’s earnings were boosted by the release of cash set aside to cover bad debts anticipated during the Covid pandemic.

Lloyds said its net interest margin, the difference between savings and lending rates, was now expected to be greater than 280 basis points.

The lender took a £200m impairment charge in the second quarter for potential bad debts as inflation soared beyond 10%, adding to the £177m set aside in the first three months of the year. Last year it released £374m in impairment provision for the coronavirus pandemic.

Lloyds said its higher impairment provision reflected inflationary risks and higher interest rates, but added defaults were low and its finances had proven resilient so far.

It also raised its forecast for return on tangible equity, a key measure of profitability, to 13% for 2022, up from a forecast of greater than 11% as of March.

"Although uncertainties persist, our measured approach to risk is demonstrated by our strong asset quality, with no current deterioration seen across the portfolio", said chief executive Charlie Nunn.

Reporting by Frank Prenesti at Sharecast.com