Lloyds Reacts to Rate Squeeze with £700m Provision for Bad Loans
Financial Markets

Lloyds Reacts to Rate Squeeze with £700m Provision for Bad Loans

llyods bank

Lloyds Banking Group has recently unveiled a substantial provision of £700 million to address the challenges posed by bad loans in the current tough economic landscape. Despite this financial caution, the bank has managed to deliver positive news to its shareholders by raising dividends, fueled by a surge in profits. As the biggest mortgage lender in Britain, Lloyds, which encompasses prominent brands such as Halifax, Bank of Scotland, and Scottish Widows, reported impressive pre-tax profits of £3.9 billion for the six months leading up to June.

This figure represents a significant increase from the £3.1 billion achieved during the same period last year, attributed to the benefits derived from higher interest rates imposed on customers as a response to the Bank of England’s measures against inflation. While exhibiting a prudent approach by setting aside additional funds to cover potential loan defaults, Lloyds is proactively collaborating with customers to manage their financial obligations and optimize savings rates for those with savings.

Lloyds is the first among the major lenders to update the City on their progress in 2023. This update comes amid accusations within the sector of rates profiteering, where institutions have been criticized for being slow to raise savings rates while quickly implementing higher mortgage costs. Barclays and NatWest, with the latter currently dealing with the departure of its chief executive following controversies related to the Nigel Farage de-banking incident, are scheduled to release their financial reports on Thursday and Friday, respectively.

This latest release of financial results by banks comes just ahead of the enforcement of a new customer service rule. Referred to as the “consumer duty,” this regulation, effective from Monday, mandates that all firms regulated by the Financial Conduct Authority (FCA) demonstrate their commitment to providing positive outcomes for customers. The key components of this duty include delivering helpful and responsive customer service, ensuring effective communications, and offering products with fair value for money.

Amid growing concerns over the ongoing cost of living crisis, compounded by the impact of rising interest rates, experts warn that the upcoming winter could exacerbate the challenges faced by household budgets, already under considerable strain.

In response to the Financial Conduct Authority’s recent Financial Lives survey, which found that 7.4 million people encountered difficulties in reaching their financial services providers during the 12 months leading up to May 2022, the watchdog has urged firms to enhance their customer interactions and expedite assistance.

Amid criticism surrounding inadequate instant access savings rates among major lenders, Lloyds has taken measures to engage with its customer base. The bank revealed that it has reached out to over 10 million customers to discuss their savings options, resulting in the opening of 1.9 million new savings accounts during the first six months of the year. Additionally, Lloyds has proactively contacted customers, including more than 200,000 mortgage customers, to provide cost of living support. The bank also reaffirmed its commitment to the government’s Mortgage Charter, which offers reduced monthly repayment options to borrowers in need.

Despite the improved interim ordinary dividend of 0.92 pence per share, representing a 15% increase from the previous year and equating to a return of £594 million to shareholders, Lloyds experienced a decline of nearly 4% in share value at the market opening. Nonetheless, the bank remains optimistic, revising its expected return on equity to be greater than 14% for the year, a closely-watched measure of profitability.

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