Lloyds bank profit jumps as UK economy begins recovery

LONDON: British bank Lloyds on Wednesday announced a surge in net profit during the first quarter on lower-than-expected credit losses as the UK economy starts to recover from the coronavirus crisis.

Profit after tax grew to £1.4 billion ($1.9 billion, 1.6 billion euros), "supported by business momentum and a release of expected credit loss provisions, given the improved economic outlook", Lloyds Banking Group said in a statement.

That compared with profit after tax of £480 million in the first three months of 2020.

"The coronavirus pandemic continues to have a significant impact on people, businesses and communities in the UK and around the world," cautioned the bank's outgoing chief executive Antonio Horta-Osorio.

"Whilst we are seeing positive signs, notably the progress of the vaccine roll-out and the emergence from lockdown restrictions, the outlook remains uncertain."

With retail banking including home loans at its core, Lloyds depends on Britain's economic performance to drive profits.

The bank in March experienced its best month for mortgages since 2008 with the UK housing market boosted during the pandemic as the government pauses taxes due on home sales.

Lloyds' mortgage book increased by six percent in the first quarter to around £283 billion compared with a year earlier.

At the same time, banks in general are being pressured by low interest rates eating into their income.

"Lloyds reported first quarter income of £3.7 billion, down seven percent year-on-year as lower interest rates continued to squeeze lending profitability," noted Nicholas Hyett, equity analyst at Hargreaves Lansdown.

"Low interest rates remain a fundamental challenge for banks," he added.

Lloyds revealed it had released £459 million of provisions originally set aside for loans it expected to sour during the pandemic.

It mirrors the situation elsewhere, with HSBC bank on Tuesday announcing that its first-quarter profits doubled thanks to a reversal in credit losses.

Lloyds' latest results are meanwhile the last ones for Portuguese national Horta-Osorio, who is leaving to become chairman of Credit Suisse.

It comes with the Swiss bank hit hard by recent bankruptcies at British financial firm Greensill and US hedge fund Archegos.

Horta-Osorio will be replaced from August by HSBC senior executive Charlie Nunn.

Under Horta-Osorio's stewardship, Lloyds slashed thousands of jobs and branches in a vast cost-cutting drive following the 2008 global financial crisis, refocusing on retail and business banking that helped it return to profit.

After a UK state bailout in the wake of the crisis, Lloyds returned to full private ownership in 2017.

Lloyds chair Robin Budenberg on Wednesday said that during his decade in charge, Horta-Osorio has created "a truly customer focussed business underpinned by strong financial foundations".