Lloyds beats profit expectations but marginally misses revenue targets

Lloyds Banking Group (LSE: LLOY) posted a robust third-quarter performance on Wednesday, reporting a pretax profit of £1.86 billion, surpassing the consensus of £1.82 billion. Despite this success, the banking giant’s net income of £4.51 billion fell short of the expected £4.56 billion, dampening investor sentiment. Lloyds shares, which fell 2.0% on Tuesday, slipped further by 0.3% in early trading on Wednesday, reaching 40.46 pence per share.

In the third quarter of 2023, the bank saw a 0.7% rise in net income from £4.48 billion to £4.51 billion, slightly below market expectations. Net interest income showed a 1.5% increase to £3.44 billion, missing the consensus of £3.45 billion. However, Lloyds’ pre-tax profit soared, more than tripling from £576 million to £1.86 billion, beating estimates and reflecting strong cost discipline.

The bank’s net interest margin, a crucial indicator of its profitability, improved to 3.08% from 2.98% due to rising interest rates, although it fell short of the expected 3.10%. Lloyds’ CEO, Charlie Nunn, expressed confidence, stating, “The group continues to perform well. Robust financial performance and strong capital generation in the first nine months of the year were driven by net income growth, cost discipline, and resilient asset quality. This performance allows us to reaffirm our 2023 guidance.”

Lloyds also revised its 2023 expectations, aiming for a banking net interest margin greater than 3.10%, up from the 2.94% achieved in 2022. Additionally, the bank anticipates an asset quality ratio below 30 basis points, a positive outlook for investors, indicating lower loan loss rates.

During the third quarter, Lloyds experienced a decline in deposits, loans, and advances. Loans and advances to customers reduced by £2.8 billion to £452.1 billion, with a significant portion due to a £2.5 billion legacy portfolio exit in the first quarter. Customer deposits decreased by £5.0 billion (1.0%), largely from a £9.4 billion reduction in retail current accounts, partially offset by a combined £5.2 billion increase in retail savings and wealth balances.