Lloyds Banking Group (LON:LLOY) reported a 5.4% rise in half-year profit and lifted its dividend, offering a confident update despite warning that high UK interest rates are starting to bite consumer spending.
The bank posted a pretax profit of £3.5 billion for the six months to June 30, up from £3.32 billion a year earlier. Net income climbed 6.2% to £8.91 billion, with interest income, its main driver, rising 5% to £6.66 billion.
Its net interest margin edged up to 3.04%, as it continued to benefit from higher rates, though the overall tone was more cautious. The bank set aside £442 million for potential loan losses, a sharp increase from £101 million last year, as it braces for potential stress among borrowers.
Despite this, Lloyds lifted its interim dividend by 15% to 1.22p per share and reaffirmed its full-year guidance. It expects net interest income of around £13.5 billion in 2025 and a return on tangible equity of 13.5%, though slightly down from 14.1% in the first half.
Operating costs rose to £4.91 billion, but Lloyds remains committed to a cost-to-income ratio below 50% by 2026 and a return on tangible equity above 15%. The bank’s CET1 capital ratio stood at 13.8% and is expected to gradually ease to 13.0% in line with capital distribution plans.
Lloyds flagged that its commercial banking arm remains watchful of the impact of elevated rates, particularly on sectors tied to consumer discretionary spending.
Shares edged up 0.5% in morning trading. While the payout is growing and performance remains solid, the economic backdrop is starting to weigh more heavily.