Lloyds profits nosedive on ?1.4bn coronavirus provision

(Sharecast News) - First quarter pre-tax profits at Lloyds Bank almost disappeared as the bank braced itself for the impact of the coronavirus pandemic with a massive provision against bad loans.
The UK's biggest domestic lender said it was making a ?1.4bn provision as it would "inevitably be impacted both within the existing book and potentially in the new lending we are undertaking to support our customers". The figure was up from ?275m a year earlier.

Pre-tax profits nosedived to ?74m from ?1.6bn a year earlier and below a Lloyds' own forecasts of around ?860m. Net income rose 11% to ?4bn while the net interest margin came in at 2.79% compared with 2.91% a year ago. The bank had already pulled its dividend in line with sector peers after regulators warned on maintaining liquity.

The fall in net income was attributed to lower interest rates and a competitive banking environment. Return on tangible equity was 5%.

Lloyds also pulled guidance for the rest of the year "given the significant change in the operating environment and economic expectations".

Loans and advances increased ?2.7bn in the quarter to ?443.bn, with increased corporate lending, primarily drawdowns of existing corporate facilities, partially offset by expected reductions in the mortgage book along with reductions in credit cards, where customer activity reduced in March, the bank added.

"The coronavirus pandemic presents an unprecedented social and economic challenge which is having a significant impact on people and businesses in the UK and around the world," Lloyds said on Thursday.

"The impact of lower rates, lower levels of activity and higher impairment on the group's business will continue into the second quarter, but remains difficult to quantify given the significant uncertainty."

Lloyds said it had provided 880,000 loan repayment holidays across all its product lines and issued 3,752 loans with an aggregated value of ?500m through the Coronavirus Business Interruption Loan Scheme.

Hargreaves Lansdown analyst Nicholas Hyett said Lloyds was "feeling the pinch from not having a large investment bank" such as Barclays and HSBC.

"Fortunately the balance sheet has proven more than capable of handling the pressure in the first quarter, and the cancellation of the dividend means the bank's key capital ratios have actually improved.

"There have been some underlying shifts in the loan book that we think are worth a closer look. The fall in mature mortgages will be one reason revenues have been hit hard - since these mortgages were written at substantially higher interest rates - as will the fall in credit card borrowing."

"Ultimately, the long-term impact of all this on Lloyds will be determined by the length of the lockdown and speed of the economic recovery. A cost base that's among the lowest in the industry will provide some support to profits, but without the counter cyclical boost provided by increased trading activity, it's going to be a painful slog for Lloyds."