Lloyds' strong start to 2018 helped by falling PPI bill

Lloyds Banking Group said it made a strong start to 2018 as a lower PPI bill helped it post a 23% increase in profit for the first quarter.

Pre-tax profit for the three months to the end of March rose to £1.6bn from £1.3bn a year earlier as Lloyds paid out less to compensate people mis-sold payment protection insurance. Revenue rose 4% to £4.6bn.

Lloyds' bill for payment protection insurance – or PPI – dropped to £90m from £350m while the cost of settling other legal and regulatory matters fell to £60m from £200m.

Underlying profit, which excludes PPI but includes other remediation costs, rose 6% to £2bn. Lloyds is Britain’s largest retail bank and was the biggest seller of PPI in the 1990s and 2000s.

The results appeared to show the bank putting PPI behind it after a spike in costs towards the end of 2017 that caused annual profit to miss expectations. Banks have paid out £30bn in compensation for the insurance, which failed to pay out for many customers.

Chief executive António Horta-Osório said: “In the first three months of 2018 we have again delivered strong financial performance with increased profits and returns.”

Impairment charges doubled to £258m from £127m a year earlier but were unchanged from the final quarter of 2017. Horta-Osório said loan quality remained strong and that the economy was in good shape.

“The UK economy continues to be resilient, benefiting from low unemployment and continued GDP growth," he said. "Asset quality remains strong with no deterioration seen across the portfolio. We expect the economy to continue to perform along these lines during 2018.”

Laith Khalaf, an analyst at Hargreaves Lansdown, said: "PPI costs are much lower than last year, and this is a theme we can expect to continue for the UK banks. As the largest source of compensation, Lloyds also stands to be the biggest beneficiary of PPI disappearing in the rear-view mirror."

Khalaf said there was room for a further pick-up in PPI costs as the Financial Conduct Authority's August 2019 deadline draws near. The FCA is running a second series of its successful advertising campaign featuring Arnold Schwarzenegger urging consumers to enquire about PPI compensation.

Lloyds said its financial targets for the year were unchanged. The bank's shares edged down 0.5% to 65.8p at 08:13 BST.