Lloyds Banking Group has announced a fresh provision of £700 million to cover potential bad loans amid the challenges posed by the tough economic climate. However, this move hasn’t deterred the bank from boosting dividends to its shareholders, fueled by its rising profits. As Britain’s biggest mortgage lender, Lloyds, which encompasses well-known brands such as Halifax, Bank of Scotland, and Scottish Widows, reported pre-tax profits of £3.9 billion for the six months leading up to June.
This figure marks a notable increase from the £3.1 billion achieved during the same period last year, benefiting from the higher interest rates imposed on customers as a response to Bank of England action against inflation. While being prudent in setting aside additional funds to cover the potential cost of loan defaults, Lloyds underlines its proactive approach in working with customers to manage their financial obligations and to offer the best rates to those with savings.
Among the significant lenders in the sector, Lloyds is the first to provide updates on their progress during 2023. The banking industry faces allegations of profiteering from interest rate disparities, with criticisms leveled at their sluggishness in raising savings rates but swift implementation of higher mortgage costs. Barclays and NatWest, the latter currently dealing with the departure of its chief executive following controversies over the Nigel Farage de-banking incident, are scheduled to report their results on Thursday and Friday, respectively.
This latest set of results released by financial institutions comes ahead of the implementation of a new customer service rule. Known as the “consumer duty,” the regulation takes effect from Monday and demands that all firms regulated by the Financial Conduct Authority (FCA) demonstrate their commitment to ensuring positive outcomes for customers. This includes providing helpful and responsive customer service, effective communications, and offering products with fair value for money.
Amid the growing concerns about the ongoing cost of living crisis, compounded by the impact of rising interest rates, experts warn that the situation could worsen during the upcoming winter. Households have already borne the brunt of financial strain, leading to mounting apprehension over the potential repercussions.
In response to the FCA’s recent Financial Lives survey, which found that 7.4 million people struggled to reach their financial services providers over the past 12 months, the watchdog urged firms to improve their customer interactions and expedite assistance.
Lloyds, faced with criticism over poor instant access savings rates among major lenders, has taken measures to engage with its customers. The bank reported reaching out to over 10 million customers regarding their savings options, leading to the opening of 1.9 million new savings accounts in the first six months of the year. Lloyds proactively contacted customers, including more than 200,000 mortgage customers, to provide cost of living support. Additionally, the bank reaffirmed its commitment to the government’s Mortgage Charter, offering reduced monthly repayment options to borrowers.
Despite the improved interim ordinary dividend of 0.92 pence per share, a 15% increase from the previous year, amounting to a return of £594 million to shareholders, Lloyds’ shares experienced a decline of nearly 4% at the market opening. Nevertheless, the bank remains optimistic, revising its expected return on equity to be greater than 14% for the year, a closely-watched measure of profitability.