Home Loan Boom Boosts Lloyds Bank Profits

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LONDON (Reuters) – Lloyds Banking Group reported higher than expected profits on Thursday, capitalizing on a boom in mortgage demand triggered by coronaviruses as it set aside a smaller amount of money to cover loans that are turning sour due to the pandemic.

FILE PHOTO: A woman walks past a branch of Lloyds Bank in London, Britain July 20, 2018. REUTERS / Toby Melville / File Photo

Britain’s largest domestic lender reported pre-tax profits of £ 1bn ($ 1.3bn) for the third quarter, well above the £ 588m average of analysts’ forecasts.

It registered new mortgages of £ 3.5bn after receiving the biggest increase in quarterly applications since 2008 – accounting for 22% of the UK market share for approvals – after a reduction in taxes on property transactions and pent-up demand that stimulated activity.

In September, the number of home purchases in Britain increased by more than a fifth, bringing the total number of sales to a level close to its pre-pandemic level.

“The housing market in general is much stronger than anyone imagined,” Managing Director António Horta-Osório told reporters.

However, he warned the UK economy “decelerated” as local lockdowns to control the virus fell in place, adding that government financial support to people and businesses had fought back deeper economic pain and new blemishes. payment until next year.

Like its rivals, Lloyds profits have been squeezed this year by provisions for bad debts expected due to the coronavirus crisis and low interest rates.

Net profit for the first nine months of 2020 fell 17% to 10.8 billion pounds, to 3.4 billion pounds recorded in the third quarter.

But echoing HSBC and Barclays results in recent days, Lloyds’ latest £ 301million provision for defaults was again in line with pre-crisis levels and less than half of £ 721million. planned.

The bank said provisions for full-year loan losses are expected to be in the lower end of the previously reported £ 4.5-5.5 billion range. He has set aside £ 4.1 billion so far this year.

“This is encouraging news, but once the stamp duty holiday ends and given the fragile economic recovery, there are fears that the mini housing boom could turn into a collapse,” said Susannah Streeter, senior analyst at Hargreaves Lansdown.

Lloyds is in the midst of a leadership upheaval just as he navigates the fallout from the pandemic, with Horta-Osório set to leave next year.

Robin Budenberg will become president on January 1, succeeding Norman Blackwell. Horta-Osório said Budenberg and Blackwell are working together to find a new CEO.

Lloyds chief financial officer William Chalmers said the board would make the decision to pay a dividend at the end of the year if regulators lift the ban on payments.

SUPPORT IN CASE OF PANDEMIC

The robust numbers allowed Lloyds to post a 7.4% return on tangible equity. Its shares were trading up 2.5% at 9:09 am GMT.

Lloyds’ net interest margin – the difference between the money it earns on loans and pays on deposits – rose to 2.42%, from 2.4% in the last quarter.

Lloyds has granted around 1.2 million retail payment holidays on £ 69 billion in loans to help ease financial pressure on customers hard hit by the pandemic.

Around 73,000 borrowers are still benefiting from a first payment freeze, while around 142,000 clients have requested extended loan relief of £ 9.8 billion.

Retail current accounts continued to rise ahead of the market in the third quarter, with the group’s deposits rising by £ 35 billion in the first nine months of 2020, which Lloyds said would help it lend strongly to the recovery.

Its core capital ratio, a key measure of financial strength, rose to 15.2% from 14.6% in the first half.

($ 1 = 0.7673 pounds)

Editing by Rachel Armstrong, John Stonestreet and Emelia Sithole-Matarise

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