Lloyds hikes dividend by 15% as profits dip

Lloyds (LLOY.L) reported a drop in profit in the first half of the year as the interest rate boom slowed but shareholders will still benefit from an increase in payout.

The banking group, which includes Halifax and Bank of Scotland, said it made a pre-tax profit of £3.3bn in the first six months of the year.

This marks a 14% decline from the £3.9bn reported this time last year, however, it comes in higher than some analysts had predicted.

Analysts had expected the lender to report statutory pretax profit of £3.21bn for the six months to the end of June and £1.58bn for the second quarter, according to consensus estimates supplied by the bank.

Net interest income, the gap between what it pays out to savers and borrowers in interest, fell 10% as the net interest margin declined to 2.94% from 3.18% a year earlier and 2.95% at the end of March.

For the full year, management continued to guide to a banking net interest margin of greater than 2.90%. Operating costs were also up 7% to £4bn.

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Lloyds‘ margins have narrowed this year amid intense competition for mortgages and deposits and the expectation that rate-setters would make multiple cuts this year.

The UK’s biggest domestic-focused banks have enjoyed robust profits in recent years as central bank interest rates rose, but Britain’s lagging economy is capping returns.

An interim ordinary dividend of 1.06p per share was declared, up 15% from a year ago, which will cost £662m in total.

Lloyds left its performance guidance for the rest of the year unchanged, saying it was confident in meeting its targets for this year and up to 2026.

Group chief executive, Charlie Nunn, said it had been a “robust” first half of trading for Lloyds with “solid income performance and cost discipline alongside strong capital generation."

He added: “We remain on track to meet our 2024 targeted outcomes. Indeed, our progress to date enables us to reaffirm 2024 guidance and remain confident in achieving our 2026 strategic objectives and guidance.”

The bank also revealed that its balance sheet grew, with the amount it lent to customers jumping by £2.7bn.

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Customer deposits also increased over the period, with an additional £4.9bn put into savings and current accounts.

Meanwhile, Lloyds is looking to make about £1.2bn worth of cost savings from changes to its wider strategy and to unlock about £700m worth of extra income, which it said it is on track to achieve.

"In all, the results are steady rather than spectacular, even though there is the promise of brighter times ahead. The cool reaction to the update in opening trade comes against a weaker wider market, but does little to undermine a recent performance, which has seen the share price rise by 30% over the last year, as compared to a gain of 6% for the wider FTSE100, including a particularly strong six-month run of late which propelled the price 42% higher," Richard Hunter, head of markets at Interactive Investor, said.

"Indeed, as a longer-term play based on shareholder returns, improving prospects and a historically undemanding valuation, the market consensus of the shares as a buy is likely to remain intact," he added.

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