Although the Bank of England has yet to cut rates, the impact of peaking interest rates is evident in Lloyds half-year results released on Thursday.
Lloyds is usually the first UK bank to report earnings and tends to be a way marker for investors in terms what to expect from other major UK banks as they report.
Judging by Lloyds’ report released on Thursday, the sector had a reasonable start to 2024, but there is going to be little to get overly excited about.
Increased competition for deposits and mortgages, coupled with the expectations of lower rate weighed on Lloyds earnings and profit before tax slipped to £2.4 billion for the first half 2024 compared to £2.9 billion for the same period last year.
Underlying net interest income dropped 10% £6.3 billion as the key measure of profitability, net interest margin, held up at 2.94%. Lloyds forecast net interest margin of above 290 basis points for the year.
“Net interest margins declined marginally on weaker lending margins driven by competition as well as deposit mix shifts,” said Niklas Kammer, banking expert and Equity Analyst.
“We are yet to see what deposit mix shifts peers will show in the quarter, but the dynamics were well within what we have seen over the recent quarters already.”
The results were, however, slightly ahead of analyst expectations and the losses in Lloyds shares were contained to 3% at the time of writing.
“Lloyd’s affirmation of 2024 and 2026 guidance after a strong set of Q2 results where they beat estimates highlights success in deepening customer relationships. Our experts believe this is driven by galvanising customers through their app and digital channels to deepen average products per customer,” said Max Georgiou, Analyst at Third Bridge.
“Maintaining momentum post H1 earnings will be key, competition for mortgages is heating up with sub 4% mortgages becoming available, Lloyds need to try and drive loyalty through service offerings to try and protect areas such as NIM.”
The group confirmed guidance for the year in what was a steady-as-you-go update from Lloyds, albeit one that had a marginally negative impact on shares.
“In the first six months of 2024, the Group delivered robust financial results with solid income performance and cost discipline alongside strong capital generation,” said Charlie Nunn, Lloyds Chief Executive.
“Indeed, our progress to date enables us to reaffirm 2024 guidance and remain confident in achieving our 2026 strategic objectives and guidance.”