Lloyds Struggles With Mortgage Loans As Profit Growth Slows Down

Lloyds Struggles With Mortgage Loans As Profit Growth Slows Down

Lloyds Struggles With Mortgage Loans As Profit Growth Slows Image: Pixabay

 Lloyds had discharged assistance of 1.4 billion pounds after the covid aftermath. This year it has made a provision of 1.5 billion pounds to tackle the expected loan defaults

After disclosing a marginal increase in profit for 2022, Lloyds Bank, a British commercial and retail commercial bank, stated that the downtrends in residential real estate prices, dwindling savings, and increase in costs had affected their bottom line. It also warned that these reasons could lead to lower returns in the upcoming months, amongst talks of recession scenarios.

The magnitude of home loans has plummeted in the range of 1.1 to 1.2 billion pounds a day, said Lloyds, the largest money lender for mortgages. Earlier this number used to be 1.5 billion pounds every single day and was considered to be just adequate. This year, residential real estate prices are predicted to fall by 7 percent.

 Lloyds had discharged assistance of 1.4 billion pounds after the covid aftermath. This year it has made a provision of 1.5 billion pounds to tackle the expected loan defaults.

Joshua Warner, a Market Analyst at City Index, stated that although this year the banks have recorded hefty profits due to rate hikes, the banks are bound to make further provisions for creating a safety cushion in times of fluctuating economic conditions.

Dividend Payout

For 2022-23, the bank announced its pre-tax profit of 6.9 billion pounds or $8.4 billion. The suspicious fact is that the profit figures align with the analyst’s predictions.

The board of directors is in talks to distribute a 1.6 pence per share final dividend. In an investor appeasement move, the bank also said they might consider a share buyback of up to 2 billion pounds, hence inflating the shareholder’s returns to 3.6 billion pounds for 2022.

Besides moderate profits, the expenditure increased by 6% to 8.8 billion pounds. It is reported that a major proportion of the expenses went into remuneration. The bank expanded its bonus payment by 12 percent resulting in an outward flow of 446 million pounds.

Charlie Nunn, the Chief Executive of Lloyds, reported that the catastrophic mini-budget presented by the government in September last year pushed down their mortgage volumes to record low levels of 600 million pounds for a day. Nevertheless, the bank rebounded from the lows back to normal within a very short period while the other players struggled to move uphill.

The Rival Report

HSBC, Barclays & NatWest, with Lloyds, are called the ‘Big Four’ heavyweight banks of Britain. Lloyds was the last among them to announce its annual earnings. 

Lloyds has a couple of other brand banking companies under its portfolio: the Bank of Scotland and Halifax, a trading division of the Bank of Scotland. However, it is completely owned by Lloyds Banking Group and the Scottish Widows, another trading name of Lloyds.

Lloyds announced that its total revenue grew by 14 percent, up to 18 billion pounds. It has announced an expectation of aiming for a return of more than 15 percent from the physical assets of the bank by the year-end of 2026. 

The bank further added a negative note to its net interest margin. It is an important metric while calculating profitability. It has been suspected that the net interest margin might plummet from its current level of 3.22 percent, last recorded at the year-end of 2022.

The competitors of Lloyds showcased their healthy profits but failed to win investors’ confidence for higher central bank interest rates. This will help them in the long term to play on the larger difference between the interest they charge while providing debt and the interest they pay to depositors on savings.

NatWest, the immediate competitor of Lloyds, made a foul play by stating that the Bank of England might have reached its highest rate and would not go any further with hikes and that the interest margins are left with no more room to be raised any further.

Barclays stock fell due to its dissatisfying and confused future viewpoints. HSBC went the other way by winning over investors’ confidence in the bank by announcing special dividend payout and share buyback programs.

Exit mobile version