Lloyds shares were firmly lower on Wednesday amid lower profits and concerns the bank would face several challenges in the second half of the year.
Although first-half 2023 profit before tax rose 23% compared to the same period last year due to higher interest rates, Lloyds experienced a sharp drop in Q2 2023 profit compared to Q1.
Q2 profit before tax fell 29% to £1.6bn from £2.26bn in Q1.
Lloyd’s fall in profits resulted from a £700m impairment charge to their retail loan book as the bank prepares for an increase in bad debts such as mortgage defaults.
Lloyds’ net income was pretty consistent in Q2 2023 compared to Q1 at £4.5bn. However, it was slightly lower than previously and will not inspire investors.
“Much will be made of Lloyds Banking Group’s 23% jump in first-half profit amid the backdrop of a cost-of-living crisis and increased pressure from regulators to share the benefits of interest rate hikes with savers,” said Danni Hewson, head of financial analysis at AJ Bell.
“The net interest margin, the difference between what a bank earns in interest from loans and what it pays out, is slightly higher than analysts had forecast for the quarter, though down on where it had been in the three months previously.”
“There are storm clouds gathering as the country’s biggest mortgage lender has to consider how many of its customers are likely to struggle as they face a jump from ultra-low fixed rates to the unexpected ‘new normal’.”
Lloyds shares were down 3.2% at the time of writing.