Lloyds shares were steady on Thursday despite reporting a 36% hit to Q3 profit due to provisions for the motor finance scandal.
Profit for the nine months to September came in at £3.3 billion, down from £3.8 billion a year earlier, as an £800 million charge for motor finance commission arrangements weighed on third-quarter results.
The UK bank’s return on tangible equity fell to 11.9% for the period. Excluding the motor finance provision, the figure would have reached 14.6%.
The bank has now set aside £1.95 billion in total to cover potential liabilities related to motor finance commission arrangements.
Max Harper, Analyst at Third Bridge, explained what could have been “a decent set of results with a net income beat, driven by other income with NII below exceptions, has been heavily hit by new a motor provision sending profits down 36%. New GBP 800m provision brings total provisioning to GBP 1.95bn which should cover Lloyds for an outcome on the negative end of the spectrum.”
With the worst of the scandal now behind the industry, investors chose to look forward, and there was little reaction in shares on Thursday.
Despite the charges, the bank demonstrated underlying strength amid the higher interest rate environment. Net interest income climbed 6% to £10.1 billion, supported by a banking net interest margin of 3.04%, up 10 basis points year-on-year.
Operating costs edged up 3% to £7.2 billion, reflecting inflation and strategic investments, though cost discipline helped limit the increase. Operating lease depreciation rose 8% to £1.075 billion in line with fleet expansion.
Lending grew across the business. Customer loans increased £18 billion to £477.1 billion, with retail lending up £15.2 billion. Customer deposits rose £14 billion to £496.7 billion.
The bank has revised its 2025 guidance, now expecting underlying net interest income of around £13.6 billion and a return on tangible equity of approximately 12%, or 14% excluding the motor finance charge.
The market reaction suggests investors are pleased with the underlying business and are happy to take the view that the bank is well positioned to deliver growth, with a line drawn under motor finance redress concerns.
“On a positive note, the upgraded NII guidance to £13.6 billion from £13.5 billion is welcome, with their hedge continuing to perform well,” Harper said.
“Furthermore, acquiring the remainder of the Schroders Personal Wealth venture should be positive from an ‘other income’ perspective and allow Lloyds to capture revenue previously left on the table. However, our experts have highlighted concerns that Lloyds has a less affluent customer base than other banks, suggesting a need to acquire new, wealthier customers.”