UK’s Lloyd’s puts a brake on bad loans due to housing crisis, declining profits

LONDON, Oct 27 (Reuters) – Lloyds Banking Group (LLOY.L) It will report lower quarterly earnings on Thursday as it prepares for higher outstanding loans as borrowers are squeezed by the weakness in the UK housing market and inflation.

Lloyd’s has lowered its economic forecasts to reflect the worsening outlook and now expects the economy to contract by 1% next year and house prices to fall by 8%.

The country’s largest mortgage lender posted a pre-tax profit of £1.5 billion ($1.74 billion) from July to September.

The decline was largely due to the additional £688m set aside to cover potentially deteriorating loans as client budgets were under pressure.

Lloyd’s shares were down 4% in early trading and 2% in the final against the broadly flat benchmark FTSE index. (.FTSE).

A mixed update from Lloyd’s is that UK banks are currently in position despite falling profits and rising non-performing loans, despite banks raising guidance on several key performance indicators. Indicates an abnormal environment that is being

Central bank interest rate hikes aimed at fighting inflation will also boost bank income, but similar inflationary pressures and higher mortgage rates are weighing on households and risking later loan defaults. there is.

Rivals such as Barclays and HSBC reported solid results this week, but investors are wary of the long-term impact of rising costs of living.

Analysts argue that Lloyd’s may be particularly vulnerable to rising loan defaults because of its huge mortgage book and large share of the credit card market.

“While Lloyd’s has no control over most of the external factors that govern customer behavior, our particular exposure to traditional lending, particularly mortgages, means that if conditions worsen, Lloyd’s will be caught in the crossfire. Analyst at Hargreaves Lansdown.

housing crisis

Britain’s new prime minister, Rishi Sunak, has said the country is facing a “serious economic crisis” as she tries to right the wrongs made by her predecessor, Liz Truss.

The market turmoil caused by Truss’ tax cut plans pushed up the cost of borrowing for the country, and lenders raised mortgage rates, further increasing pressure on household budgets.

When asked what he wanted from the government, William Chalmers, Lloyd’s finance chief, told reporters, “Our only request would be for a period of stability.” It helps us support our customers.”

Chalmers said a slowdown in mortgage lending is likely over the next 12 months as a result of higher interest rates and affordability pressures.

The bank is also concerned that Sunak’s new government could impose additional taxes on the industry, with Finance Minister Jeremy Hunt considering additional taxes on the bank’s profits.

Mr Chalmers said the additional bank tax was a decision for politicians, but added that “our long-term demand is a competitive tax regime for the UK banking sector”.

Lloyds said the strength of its underlying performance, despite lower earnings, means it may raise its forecasts on some performance measures this year.

The net interest margin, which measures how much a bank makes on the spread between what it pays savers and what it charges borrowers, will be 290 basis points instead of 280, and banks will generate more capital. right.

But Lloyds said asset quality — a measure of potential loan defaults — is expected to deteriorate slightly this year. He added that actual loan defaults will remain low for the foreseeable future.

($1 = £0.8604)

Reported by Iin Withers and Lawrence White.Editing by Jason Neely and Mike Harrison

Our criteria: Thomson Reuters Trust Principles.

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