Lloyds offers help to customers as concern mounts over inflation

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Banking group LLOYDS has revealed it is reaching out to offer financial advice to customers amid a deteriorating economic outlook, as the owner of Bank of Scotland warned of “the persistence and impact higher inflation”.

The bank delivered a gloomy assessment of the economy, in the throes of a worsening cost of living crisis, as it reported a 14% drop in first-quarter profits to £1.6bn sterling – ahead of the £1.4 billion forecast by analysts.

Profits tumbled as Lloyds made a £177m provision for potential bad debt as households grapple with soaring fuel bills and runaway inflation. The charge marked a reversal from the first quarter of last year, when the bank released £360m of provisions it had made for pandemic-related bad debts.

But overall it had been a solid first performance for Lloyds in the first quarter, which saw its earnings boosted by rising interest rates (raised by the Bank of England to 0.75% in March after increases of 0.1% to 0.25% in December and then 0.5% in February) to fight against the surge in inflation), and the continued recovery of customer activity.

Lloyds said net profit rose 12% in the first quarter to £4.1bn, with loans and advances to customers rising by £3.2bn to £451.8bn . This included continued growth in the bank’s open mortgage portfolio, which grew by £1.7bn to £295bn. Customer deposits rose by £4.8bn to £481.1bn, Lloyds reported, which said banks’ net interest margin increased to 2.68% from 2. .49% in the first quarter of 2021.

Despite concerns over the outlook, the bank said asset quality “remains strong”, noting that rising inflation had been offset by rising house prices and unemployment. And it raised its forecast for net bank interest margin and return on tangible equity for 2022.

Russ Mould, chief investment officer at stockbroker AJ Bell, said: “Lloyds’ first quarter update speaks volumes about the state of the UK economy. The country got back on its feet, which meant increased lending and savings deposits for Lloyds. However, the outlook is far from rosy.

“It’s serious when a bank talks about proactively reaching out to customers who might be facing financial problems to offer them help and advice.

“It’s quite a different tone from a company whose key messages recently focused on expanding into wealth management, ie helping the wealthy manage their money.

“It reminds us that Lloyds’ customer base is broad and that having a caring mentality is the right approach, even if it doesn’t necessarily translate into profit growth. Banks can’t alienate part of their customer base just because they don’t fit the target market for future growth. Lloyds’ roots lie in helping people of all types and this inclusive approach is fundamentally correct.

Susannah Streeter, principal investment and market analyst at Hargreaves Lansdown, said: “For banks, there is always the risk that a deterioration in economic health could hurt consumer loan businesses and see bad debts build up, but for now Lloyds Bank is galloping away from these worries.

“Despite the uncertain terrain ahead, the impact of the tougher outlook is limited, with a still very buoyant housing market and low unemployment.”

Ms Streeter added: “There are concerns that at some point rising rates will hurt buyers’ sentiment, but with high rents and historically still cheap mortgages, there still seems to be plenty of appetite to pass and climb the housing ladder.”

Charlie Nunn, chief executive of Lloyds, said: “As we see a continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regard to the persistence and impact of higher inflation. We are proactively reaching out to customers when we feel they may need help and will continue to help them with financial health checks and other support. We encourage customers, when are concerned, get advice early and talk to us.

Shares of Lloyds closed down 1.1% to 46.39p.

Meanwhile, the TSB confirmed last night that it had appointed Glasgow-born Robin Bulloch as its permanent chief executive. Banking veteran Mr Bulloch, who previously held senior roles at Lloyds, Royal Bank of Scotland and Tesco Bank, had held the post on an interim basis since Debbie Crosbie left for Nationwide in December.

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