Lloyds Banking Group has reported a drop in profit for the first quarter of the year, as operating costs at the º£½ÇÊÓƵ-focused bank surged.
The FTSE 100 heavyweight, which includes Lloyds, Halifax and Bank of Scotland, matched analyst predictions for pre-tax profit at £1.5bn – a seven per cent decrease from the first quarter of 2024, as reported by .
Shares in Lloyds fell nearly two per cent in early trading on Thursday.
The dip in profits was driven by a six per cent increase in operating expenses to £2.6bn. The bank attributed this to growth costs and the timing of strategic investments, including planned severance for the first quarter.
Lloyds set aside an impairment charge of £309m, compared to the £57m reserved in the first quarter of 2024.
The company said this included a £100m central adjustment to address the potential risks of President Donald Trump's unpredictable tariff policies announced at the start of April.
Loans and advances to customers rose £7.1bn to £466.2bn and net income increased four per cent to £4.4bn, but these gains were offset by rising costs.
Net interest income remained stable at £3.3bn – roughly in line with earnings from the fourth quarter of 2024.
However, the bank noted that inflationary pressures had impacted expenses.
As Britain's largest mortgage lender, Lloyds' domestic focus makes net interest income a crucial source of revenue for the bank.
In 2024, lenders recorded record profits due to post-financial crisis high interest rates.
However, the Bank of England has since reduced rates to 4.5 per cent from 5.25 per cent last July, and analysts are predicting four cuts for 2025.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, commented: "This was more of a canter than a full gallop from Lloyds, as first-quarter results stumbled slightly at the final hurdle."
"Higher impairments were partly to blame for the small profit miss, but this was largely due to caution around the economic outlook rather than any real issues with borrowers. Default rates across the portfolio remain in excellent shape, and management sounded confident about the outlook for the year."
Motor finance ruling looms
Lloyds' domestic focus allowed it to avoid significant stock hits during Trump's tariff onslaught, unlike its FTSE 100 counterparts.
Shares have risen nearly one per cent in the last month, while its peers HSBC and Standard Chartered remain down over five per cent.
The lender is now facing another scandal as it awaits the Supreme Court's ruling on motor finance.
Lloyds has set aside £1.2bn in provisions for the car mis-selling scandal, which relates to the Financial Conduct Authority's investigation into discretionary commission agreements that allow brokers to effectively set their own interest rates.
Lloyds' fourth quarter profit for 2024 fell to £824m, reflecting these provisions.
The financial watchdog has stated that this creates opportunities for customers to be overcharged through unclear deals, and consequently banned the use of DCAs in 2021, asserting it would save customers £165m annually. RBC analysts forecast a downside scenario for lenders could leave Lloyds liable for £4.6bn.
Lloyds is among several major British lenders restructuring their branch network, with plans to shut down 27 sites in May. In February, City AM disclosed that the lender had placed approximately 6,000 tech and engineering jobs under review as part of its digital overhaul to modernise its banking services.
Charlie Nunn, Lloyds' chief executive, commented: "We continue to make good progress on our strategic transformation and deliver innovative ways for our customers to manage their financial needs and achieve their financial aspirations, in line with our purpose of Helping Britain Prosper."
He added: "Our differentiated business model stands out in the context of recent market volatility and economic uncertainty and helps support º£½ÇÊÓƵ households and businesses as they further strengthen their financial resilience."
