Lloyds Banking Group reported a jump in profits in the third quarter as costs from the payment protection insurance (PPI) scandal diminished, with chief executive Antonio Horta-Osorio greeting a "strong financial performance" in results announced today.
The bank, which this year returned fully to private ownership, announced statutory profit before tax for the year to the end of September was £4.50bn, a 38 per cent increase compared with the same period last year.
Third-quarter profits were £1.95bn, which represented a 141 per cent year-on-year increase after a weak period last year when the bank was forced to pay a massive fine for misselling PPI. That beat analysts' expectations, which had predicted profits of around £1.6bn for the quarter.
Britain's largest retail bank reported income for the nine-month period rose by six per cent year-on-year to £13.9bn, while costs fell by one per cent. The cost-to-income ratio fell by 1.8 percentage points, helping boost profits.
Lloyds increased its forecasts for capital generation to between 2.25 and 2.40 percentage points this year, above its long-run expectation of 1.7 to 2.0 basis points.
Why it's interesting
The strength of profit increases reflects the lack of new fines which have previously weighed on profits, with "no additional charges" for conduct, the bank said today. The outstanding PPI balance sheet provision at the end of September was £2.3bn, the bank said, with a pick-up in claims following the Financial Conduct Authority's advertising campaign starring actor Arnold Schwarzenegger.
The lack of further conduct costs provided a boost in the absence of any growth in the amount of loans and advances to customers for the UK's dominant retail bank.
What Lloyds said
António Horta-Osório, Lloyds's group chief executive, said: "In the first nine months of the year we have delivered strong financial performance with increased underlying and statutory profit, a significant improvement in returns and strong capital generation.
"These results highlight the strength of our customer-focused, simple and low-risk business model and the benefits of our competitive advantage in the UK."
He added: "Asset quality remains strong, reflecting our prudent approach to risk, while the UK economy remains resilient."