Richard Hunter, Head of Markets at interactive investor, says Lloyds Banking Group's first-quarter update is solid and reassuring, noting the group has recognised the potential economic impact of the Middle East conflict by booking an underlying impairment charge of £295 million to anticipate possible losses.
He points to higher income and lower operating costs as the main drivers of resilience, with underlying net interest income up 8% to £3.6 billion, pre-tax profit rising 33% to £2 billion, net interest margin improving to 3.17%, and structural hedge income contributing £1.6 billion this quarter and guided to more than £7 billion for the year.
Supporting signals include mortgage growth of 4% year on year with mortgages accounting for 67% of the loan book, overall loans and advances up £5.1 billion to £486.2 billion, deposits increasing 2% to £496 billion, a CET1 ratio stable at 13.4%, cost/income down to 51.9% and ROTE up to 17%, while motor finance redress appears to be behind the bank and fee-led businesses including insurance, credit cards and the acquired Schroders Personal Wealth are being built out.
He says the planned strategic update at the half-year results in July will be the key test of whether these prudential provisions and diversification plans translate into sustained returns.
