Lloyds shares rise on £4.1bn net income and raised guidance

Lloyds shares were up 2% to 46.8p in early morning trading on Wednesday, following a positive Q1 update from the company with a 12% increase in net income to $4.1 billion compared to £3.6 billion in Q1 2021.

The firm reported a £1.2 billion statutory profit and against £1.4 billion in Q1 2021 on higher net income and a limited underlying impairment charge versus net credit the previous year.

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The company also reported an underlying net profit before impairment increase of 26% to £1.9 billion against £1.5 billion, driven by high net income growth.

The banking firm’s asset quality remained strong, with an underlying impairment of £200,000 reflecting a low incurred charge and restricted impact from revised economic outlook, including higher inflation offset by higher house prices and lower unemployment.

“In the first three months of 2022, we delivered solid financial performance, with strong income growth and capital build,” said Lloyds CEO Charlie Nunn.

“These results demonstrate the consistent strength of our business model.”

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The financial giant beat the stormy economic forecast with a £3.2 billion rise in loans and advances to customers at £451.8 billion over Q1 2022, and a £1.7 billion increase in its mortgage book to £295 billion despite rising inflation and surging house prices.

“For banks there is always the risk that a deterioration in economic health could hurt consumer loans businesses and see bad debt pile up, but for now Lloyds Bank is galloping away from these worries,” said Hargreaves Lansdown senior investment analyst Susannah Streeter.

“Despite the uncertain terrain ahead, it’s seen limited impact from the tougher outlook, with the housing market still super-bouyant and unemployment low.”

“While other companies take a sharp intake of breath about more aggressive monetary policy, it’s a boon to banks like Lloyds given rising rates lift net interest margins.”

Lloyds confirmed a higher net interest and a rise in other income, along with low operating lease depreciation as contributions to its increase in revenue.

Lloyds mentioned a £4.8 billion increase in customer deposits to £481.1 billion, with continued inflows to the company’s brands, along with a loan to deposit ratio of 94% providing the group with robust funding and liquidity.

The bank further noted a strong capital build of 50 basis points, which allowed for a boost in accelerated pension contributions, comprising the full 2022 fixed contributions along with 50% of the variable element.

The financial group noted a CET1 ratio of 14.2%.

Lloyds also said it would be enhancing its 2022 guidance for banking net interest margin and return on tangible equity, with banking net margin expected to hit over 270 basis points and the return on tangible equity projected in excess of 11%.

The company predicted operating costs of £8.8 billion on the new reporting basis and asset quality ratio at 20 basis points, with risk-weighted assets at the close of 2022 estimated to be £210 billion.

“Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation,” said Nunn.

“We are proactively contacting customers where we feel they may need assistance and will continue to help with financial health checks and other means of support. We encourage customers, where affected, to get advice early and talk to us.”

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