Lloyds Bank Q3 profits fall on bad loans, raises NIM forecast

Lloyds Bank lifted net interest margin guidance despite a fall in third quarter profit and rise in bad loan charges as the economic crisis started to worsen.

The UK’s biggest mortgage lender on Thursday said it now expected net interest margin, a key measure of the difference between lending and savings rates, to be above 2.90% from 2.8%.

Pre-tax profit fell 26% to £1.5bn. Net income rose 12% to £13bn on the back of surging interest rates with impairment charges soaring to £668m from a release of £119m a year ago.

"The current environment is concerning for many people and we are committed to maintaining support for our customers," said Lloyds chief executive Charlie Nunn.

Hundreds of mortgage products were pulled by UK banks this month and rates on loans ratcheted up in response to now-departed prime minister Liz Truss’s catastrophic financial policies which sent markets into turmoil.

Lloyds said there had been only “very modest” evidence of customers struggling with repayments to date.

“So far at least, our customers are proving to be resilient and adapting well to the cost-of-living increases that we have seen," said chief financial officer William Chalmers.

“We are deliberately ensuring that we lend to customers who are best placed to withstand potential future stresses on the macro level and in their own personal circumstances. We have stress-tested mortgage customers for re-financing rates that are in excess of what we might see over the course of the next 12 months."

The Bank of England is expected to hike rates by 0.75 percentage points next week having taken them from 0.25% to 2.25pc already this year in an attempt to tame rampant inflation.

Chalmers said the bank will be passing about half of rising rates through to savings customers, in line with its competitors.

AJ Bell head of investment analysis Laith Khalaf, said the large bad debt provision "says something less than positive about the UK economy".

“What will really upset the apple cart with shareholders is if Lloyds shows any sign of deviating from an upward path on dividends, which is a key reason many people hold the stock,” he added.

Reporting by Frank Prenesti for Sharecast.com