Lloyds profit rises on mortgage activity and provisions reversals

  • Lloyds Statutory profit before tax £5.9 billion in first nine months 2021
  • Lloyds Statutory profit before tax £2.0 billion in third quarter
  • Customer deposits of £479.1 billion, +£28.4 billion
  • Pandemic provisions reversed by £740m in 2021

Lloyds provided investors with a welcome update on Thursday as the group released third quarter results that beat analyst estimates.

Lloyds reported statutory profit before tax of £5.9 billion in first nine months 2021, up from £2 billion in the same period last year.

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Lloyds shares rose 1% in early trade on Thursday.

Lloyds attributed the jump in profit to higher mortgage activity and the reversal of provisions to cover bad debt during the pandemic.

The strength of the UK economy meant Lloyds has reversed £740m of debt provisions so far in 2021 which has helped the bank’s profitability dramatically, when compared to last year.

The banking group’s Mortgage Loan Book rose by £15 million highlighting Lloyds’ strength in the UK’s home loan market.

“Lloyds is following the path trodden by other banks. A better-than-expected economic outcome from the pandemic means money that was put aside for debt defaults can now be released, plumping up profits in the process. Put that together with the fact mortgage lending remains elevated, and Lloyds is sitting pretty,” said Sophie Lund-Yates, equity analyst at Hargreaves Lansdown.

Highlighting the removal of government scheme that supported the housing market throughout the pandemic, Lund-Yates believes mortgage activity will be robust in the coming periods.

“Despite the removal of some helpful tailwinds, there’s reason to expect mortgage activity will remain buoyant as Lloyds heads into the final quarter. A longer-term question is the future of Lloyds’ position as the UK’s largest bank branch network. Habits have changed since the pandemic, and the days of the bank branch could be numbered, especially as digital banking is so much more cost effective for the banks themselves.”

“Positive trends are coming through in Lloyds’ net interest margin, which looks at the difference between what the bank charges on loans and pays on deposits. With thoughts that interest rates could budge upwards in the not-too-distant future, the banking giant could be looking forward to a meaningful boost on that front.”

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