In April, the firm issued its first quarter statement, and it revealed that net income increased by 12% to £4.1 billion. Net interest margin – the margin that banks make on lending - increased to 2.68%. Statutory profit was £1.2 billion, down from £1.4 billion in the same period last year, but that metric was boosted by a net credit allocation. Mortgage lending edged higher by £1.7 billion, and the book now stands at £295 billion. It is possible that clients wanted to lock-in certain mortgage rates as there was speculation the Bank of England would keep lifting rates – which they did. Customer deposits ticked up by 1% to £481.1 billion, which is helping with the loan to deposit ratio of 94%. Lloyds’ balance sheet is in rude health as the CET1 ratio is 14.2%.
Despite the gloomy first quarter update, the bank posted well received first half numbers in July. Pre-tax profit for the six-month period was £3.7 billion, down 5% on the year, but it topped the £3.2 billion that equity analysts were expecting. The bank lifted its interim dividend by 20% to 0.8p. In another sign of confidence, Lloyds lifted its guidance for return on tangible equity from 11% to 13%. At the time, there growing concerns for the banking sector and the wider economy, so the optimistic outlook really stood out. It was not all good news, as the wared that roughly 1% of its clients are "are really struggling to make ends meet” and considering that thing will probably get worse before they get better, that percentage of client will probably rise. The cost-of-living crisis is yet to properly set in, and it is believed that approximately 20% of Lloyds clients are making major changes to the way they spend money. The Bank of England carried out seven rate hikes in the past nine moments, and it often said that a singe hike can six month to trickle down to the economy, so there is more pain in the pipeline with regards to higher borrowing costs.
Lloyd’s share price fell to a four-month low in July amid a wider decline in equity markets. Since then, the stock has rebounded and last week it registered a six-month high. The stock spiked one day in advance of the BoE meeting as traders were anticipating a lift in rates. Lloyd’s share price has been trending lower recently, and while it holds below 46p, it is possible the bearish trend will continue. Further declines from here could see it target 38p or 32p.