UK bank Lloyds' profit slumps 7%

A further £550 million (Dh2.45 billion) provision to meet claims for mis-sold insurance to consumers weighed on earnings

FILE PHOTO: A woman walks past a row of cash machines outside a branch of Lloyds Bank in Manchester, Britain, February 21, 2017. REUTERS/Phil Noble/File Photo  GLOBAL BUSINESS WEEK AHEAD
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Britain's biggest mortgage lender Lloyds Banking Group posted weaker than expected pretax profits on Wednesday, as a further £550 million (Dh2.45 billion) provision to meet claims for mis-sold insurance to consumers weighed on earnings.

The bank posted pretax profits of £2.9bn for the first half of the year, below forecasts of £3.45 bn according to a company-provided average of analyst forecasts.

The figure was down 7 per cent from £3.12bn pounds for the same period the previous year.

Lloyds said exceptional charges, including PPI, would knock its ability to build capital for 2019 to the lower end of its 170 to 200 basis points range.

Without one-off costs, Lloyds matched analyst forecasts for underlying profits, at £4.2bn.

Chief executive Antonio Horta-Osorio said Britain's deepening Brexit crisis had impacted on business confidence.

Britain's lenders are bracing themselves for a potentially chaotic Brexit, with businesses voicing concerns at new Prime Minister Boris Johnson's combative approach and the raised prospects of the country leaving the European Union without a deal, which has slashed the value of the pound.

Lloyds is seen as particularly exposed to any downturn through its billions of pounds of lending to British consumers and businesses, but unlike rivals Royal Bank of Scotland, Barclays and HSBC is yet to make a provision against a potential spike in bad loans.

Lloyds posted a 27 per cent jump in impairments on bad loans to £579m, which it blamed on a weakness in used car prices hitting its motor finance business.

Intense competition in Britain's home lending market pulled down Lloyds' net interest margin - a closely-watched measure of underlying profitability - to 2.9 per cent from 2.91 per cent the previous quarter and 2.93 per cent a year ago.

Despite the deterioration both the impairments and net interest margin figures were in line with analyst expectations.

The bank's core capital ratio - a measure of financial strength - was 14.6 per cent, down from 14.2 per cent the previous quarter, but above consensus of 14.2 per cent.