Lender Lloyds Reserves £100m for Potential Tariff Uncertainty as Profits Plummet
Revised Article:
Lloyds Banking Group's profits took a hit at the start of the year, with a 7% dip compared to the previous year, all while setting aside more cash for potential future bad debts. The group reported a pre-tax profit of £1.52 billion for the three months ending March 2025, a dip from £1.63 billion in the same period the year prior.
The extra cash was largely due to impairment charges, jumping to £309 million from £57 million in 2024. Part of this increase was attributed to potential borrower defaults, a concern sparked by the tariff hikes introduced by Donald Trump, leading to worries about the world economy's future outlook.
The banking behemoth pointed out that initial non-UK tariffs announced in April, along with the immediate market response, were larger than anticipated. Other financial giants, like HSBC and UBS, have raised similar concerns about deteriorating loan demand and additional credit losses stemming from the wider fallout of Trump's global trade war.
While major US banks warned of economic turbulence as early as March 2025, Lloyds forecasts for the British economy are quite mixed. They predict a slow expansion in gross domestic product, a moderate rise in the unemployment rate, and small gains in the residential and commercial property market. However, inflationary pressures are expected to persist, and gradual cuts in UK Bank Rate are forecasted to continue during 2025.
Despite recent turbulence, the banking titan reaffirmed its guidance for its annual results, citing "recent market volatility and economic uncertainty" as not factors to significantly alter its outlook. Its underlying net interest income for the quarter reached £3.3 billion, up 3% year-on-year and 1% compared to the final quarter of 2024.
The bank reported strong growth in lending and deposits, with underlying loans and advances to customers rising by £7.1 billion in the quarter to £466.2 billion. The growth was primarily fueled by UK mortgage expansion of £4.8 billion. Customer deposits increased in the quarter by £5 billion to £487.7 billion, with £2.7 billion growth in retail and £2.3 billion in commercial banking.
Charlie Nunn, the group's CEO, expressed confidence in the bank's future: "In the first quarter of 2025, the group delivered sustained strength in financial performance. We remain confident in the outlook for Lloyds Banking Group and in our 2025 and 2026 guidance."
However, Lloyds Banking Group's shares fell 1.99% on Thursday, following a roughly 40% increase in the preceding year. John Moore, a senior investment manager at RBC Brewin Dolphin, noted that while the results showed resilience, they were "mixed."
With rising income and a stronger net interest margin, the increased costs and impairment provisions related to tariff issues highlight the challenges the bank may face if the UK economy doesn't recover as anticipated. The potential cost of mis-sold car finance products also looms as a significant hurdle, with a ruling by the Supreme Court expected in July 2025.
As the bank moves closer to outlining its long-term plans and strategic direction, the focus remains on how it intends to navigate the economic uncertainties that lie ahead.
- The dip in Lloyds Banking Group's profits highlighted potential future bad debts and their concerns regarding investing in property due to high tariff pressures.
- The banking sector, including Lloyds, HSBC, and UBS, are facing challenges from deteriorating loan demand and additional credit losses due to the world economy's uncertain future outlook, mostly attributed to tariff issues.
- It was revealed that a significant portion of the increase in impairment charges at Lloyds Banking Group was due to potential borrower defaults caused by tariff hikes, which impacts personal-finance and business, as well as the overall economy.
- Despite the recent turbulence and economic uncertainty, Lloyds Banking Group is hoping for a recovery in the British economy, especially in the residential and commercial property market, but they expect inflationary pressures to persist.
- The strong growth in lending and deposits at Lloyds Banking Group, primarily driven by UK mortgage expansion, is a positive sign for property investing, but the increased costs and impairment provisions related to tariffs and mis-sold car finance products could put a strain on their finances.
- Investors are closely watching Lloyds Banking Group to see how they will navigate the economic uncertainties, especially with the looming Supreme Court ruling on mis-sold car finance products and the potential cost associated with it.
- The focus remains on Lloyds Banking Group's long-term plans and strategic direction, particularly how they intend to address the challenges and minimize the impact of tariffs and other economic pressures on their business and investments.
