Lloyds benefits from higher interest rates as mortgage book grows

Lloyds added to the list of recent positive updates by FTSE 100 companies as the bank said it was thriving in the higher interest rate environment while their mortgage book jumped.

Despite putting aside £377m provisions for bad debts, the surge in net interest income to £6.1bn in the six month to June 2022 helped drive underlying profit of £3.7bn.

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“Lloyds has stepped onto the half-year court fighting. Half year results show a serious improvement in net interest income, as rate rises and accelerated UK consumer activity boosted performance, with the difference between what Lloyds earns in interest on loans and the amount it pays in interest on deposits, moving in its favour,” said Sophie Lund-Yates, Equity Analyst at Hargreaves Lansdown.

“Impairment charges look large on paper but were in fact rather benign in nature. This, combined with the improved efficiency profile bodes well for future returns. The framework is set for much improved profitability too, which increases the chasm between expectations and the group’s valuation, potentially setting the scene for further buybacks.”

Lloyds highlighted a plethora of positive moves in key metrics including an enviable increase in net interest margin to 2.77% from 2.5% in the same period a year ago.

Lloyds mortgage book rose £3.3bn to £296.6bn as overall loans rose to £456.1bn. Total deposits also grew as the bank enjoyed inflows from customers.

The banking group’s outlook was particularly encouraging as the group said they expect net interest margin to rise further and capital regeneration to in excess of 200 basis points.

“In February we announced an ambitious strategy to transform our business, generate a stronger growth trajectory and enable the Group to deliver higher, more sustainable returns,” said Charlie Nunn, Lloyds Group Chief Executive.

“While the world has changed significantly since February, our strategic focus remains clear and disciplined. Our strong financial performance demonstrates the resilience of our business model and customer relationships, and has enabled us to enhance guidance for 2022.”

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