Lloyds retail profit soars

State-controlled Lloyds Banking swung back into profit last year as impairment charges almost halved and retail net margins improved. Pre-tax profits were £281m, down from £1bn, but on a continuing basis profits were £2.2bn against a loss of £6.4bn. Market forecasts had been for a profit between £1-1.8bn. The £2.2bn profit excluded the £500m provision for Halifax customers issued badly worded mortgage agreements announced earlier this week.Lloyds says the continuing basis is a better measure. It assumes it owned HBOS all of last year and excludes a whole range of integration charges. After tax, there was still a net loss of £320m, against a profit of £2.84bn last time. Underlying total income increased by 3% to £23.6bn including core business income growth of 7%. Banking net interest margin improved to 2.1% (2009: 1.77%), though the bank says most of the improvement was seen in the first half and it is cautious on margins rising further.Profits at its retail division more than tripled to £4.7bn, compared with £1.3bn in 2009, aided by switching customers onto a more lucrative standard variable mortgage rate.Bad debt charges tumbled by 45% to £13.2bn from £24bn, despite an increase in Irish impairments of £1.3bn to £4.3bn. Changes in bank fees and lower overdraft charges meant other income decreased by 11% in 2010 to £1.6bn.Outgoing chief executive Eric Daniels did not say whether he would cash in his £1.45m bonus for 2010, which does not pay out until 2013. Brokers expressed disappointment with the numbers, suggesting the tail-off in the improvement in net interest margin and cautious comments over any further improvement 2011 and 2012 might hinder the possibility of dividends in 2012.Lloyds, which is 43% owned by the UK taxpayer, said it was a "Good trading performance against the backdrop of modest growth in UK economy." The bank added it provided £30bn of gross mortgage lending (including remortgages) and £49bn of committed gross lending to businesses, of which £11bn was for SMEs (small businesses). "Given the flexibility and capacity we have for core business growth, we continue to believe that the group has strong medium-term prospects, notwithstanding the economic and regulatory headwinds that we face in 2011," Mr Daniels added.