It sets aside an impairment charge of £1.5 billion
Lloyds Banking Group has reported unchanged pre-tax profits of £6.9 billion in 2022, as higher net income and lower total costs were offset by impairment charges as a result of the revised economic outlook.
The group’s net income of £18 billion was up by 14%, supported by continued recovery in customer activity and UK bank rate changes, as well as continued low operating lease depreciation.
The UK’s biggest mortgage lender also announced it has put aside an underlying impairment charge of £1.5 billion, of which £0.5 billion was in the fourth quarter alone.
In 2022, the Group delivered a robust financial performance and continued business momentum.
— Lloyds Banking Group (@LBGplc) February 22, 2023
For a full #LBGResults breakdown visit: https://t.co/JcvoZoP8we#LLOY $LYG pic.twitter.com/9GOrF7SUVK
“While the operating environment has changed significantly over the last year, the group has delivered a robust financial performance with strong income growth, continued franchise strength and strong capital generation, enabling increased capital returns for shareholders,” Charlie Nunn (pictured), group chief executive at Lloyds, commented on the full-year results.
“A year ago, we announced our ambitious new strategy with the aim of growing our business and deepening relationships with our customers, meeting more of their financial needs. We have made a good start to delivery and remain confident in our ability to deliver for all stakeholders.
“We know that the current environment continues to be challenging for many people and have mobilised the organisation to further support our customers. Our purpose-driven strategy is more relevant now than ever before. We remain committed to ‘Helping Britain Prosper’ and helping the country recover from the current economic uncertainties. We are excited about the opportunities ahead.”
Brokers react to Lloyds setting aside £1.5 billion to cover potential defaults
“As expected, another leading bank has set aside large funds for impairment charges,” Gaurav Shukla, chief executive at home me, remarked. “This comes on the back of Barclays announcing a similar amount. This won’t be the last bank to do it either.
“We will, unfortunately, see many people struggle with debt payments, especially mortgages as the payments will have nearly doubled for most people who are remortgaging this year. So sadly, this doesn’t come as a surprise.”
For Lewis Shaw, owner and broker at Riverside Mortgages, “when Lloyds Banking Group does something, you listen.”
“Clearly, they’re expecting defaults to rise along with possible repossessions, and they’re preparing for precisely that eventuality,” he said. “Even though rates have come down, millions of people are due to have rate shock given the numbers that opted for short term two-year deals in 2021. That, coupled with energy costs and the broader cost-of-living, is going to be very challenging for many, and Lloyds is preparing for it accordingly.”
Scott Taylor-Barr, financial adviser at Carl Summers Financial Services, pointed out that that UK banking has been very conservative, particularly after the 2008 financial crisis.
“It is very likely this reserve could well be a ‘worst case scenario’ figure,” he said. “We may find that they end up with a surplus to reinvest back into their accounts at a later time in 2023, especially given this month’s surprise news about how well UK plc is actually doing. Any credit defaults are most likely on unsecured debts, such as credit cards and personal loans, more so than mortgages.”
“You have to remember that Lloyds Banking Group is one of the UK’s largest lenders, home to brands such as Halifax and Bank of Scotland, as well as the flagship Lloyds brand. Their loan book, including car finance, hire purchase, mortgages, credit cards and personal loans, is vast. So, any numbers they quote will always have a lot of zeroes in them.”
Riz Malik, director at R3 Mortgages, agreed, saying that as the banking group is one of the biggest mortgage lenders in the UK, it is prudent to set aside provisions for bad debt.
“If the economy worsens, defaults on unsecured lending are likely to rise first followed by secured lending,” Malik added. “It will be interesting to see what Lloyds and other lenders will do to assist customers facing financial difficulty in the months ahead.”
Want to be regularly updated with mortgage news and features? Get exclusive interviews, breaking news, and industry events in your inbox – subscribe to our FREE daily newsletter.
