Lloyds Banking Group share price has been a notable outperformer year to date, up over 30% year to date, and still remains somewhat below its pre-pandemic levels, when it was nearer to 60p.
This seems rather underwhelming given that a lot of the worst-case scenarios, that were being priced in earlier this year, haven’t even come close to playing out, with the UK economy bouncing back in a much stronger manner than was thought likely back in January
In July, when the bank released its H1 numbers, profits came in at £3.9bn, helped by a strong performance in Q2, with the bank releasing another £333m from loan loss reserves, on top of the £323m in Q1 taking the total on H1 to £656m.
The performance of the underlying business also saw improvements as net interest margin rose to 2.51%. In Q1 Lloyds said they expected NIM to be more than 245 basis points, up from 240 at the end of the previous quarter, so the Q2 upgrade to 250bps for the rest of the year was very welcome, although it’s still below last year’s 2.59%’
This should improve further with the recent steepening of the yield curve, while today’s Q3 numbers have brightened the outlook even further.
Barclays numbers last week had already given us a reasonable steer when it came to how the UK consumer was faring, and whether the numbers from Lloyds and NatWest Group might go the same way when they release their numbers.
Today’s Q3 numbers from Lloyds appear to confirm this, with profits after tax coming in at £1.6bn, almost £1bn higher than a year ago, pushing profits, year to date to just shy of £5.5bn, with the bank only adding back £84m in terms of loan loss provisions, due to the improved economic outlook, taking total impairments added back to £740m year to date.
Loans and advances to customers rose by £3bn over the quarter to £451bn, with decent demand for mortgages, an increase of £11bn year to date, while customer deposits rose by £5bn to £479bn.
Net interest margin for Q3 rose to 2.55%, a 13bp rise from the same period a year ago.
In terms of the wider economy the loan book structure was also slightly more positive, and while the amount lent is still below the levels a year ago credit card lending rose to £13.8bn in Q3 from £13.6bn in Q2, as people spent money on staycations.
Motor finance loans saw a drop to £14.1bn from £14.4bn, while lending to SME’s declined modestly from £40.4bn in Q2 to £39.8bn.
One notable announcement earlier this year was the acquisition of Embark which is a wealth management and pensions company and is due to complete in Q4.
This will add another £35bn of assets under management and complement its Scottish Widows business and help to boost its wealth management business.
Today’s numbers have seen the bank raise their guidance for the rest of the year with net interest margin now expected to be well above 2.5% over the remainder of the year.
Having resumed dividends earlier this year and given how well the bank appears to be doing, and assuming that we see a similarly robust Q4, shareholders have every right in thinking that the full year numbers could see the bank improve its payout.