Lloyds reports increase in profits

State-backed Lloyds Bank reported a better-than-expected 21% rise in underlying profits to �2.18 bil

State-backed Lloyds Bank reported a better-than-expected 21% rise in underlying profits to �2.18 billion for the first quarter. - Credit: PA

State-backed Lloyds Banking Group has reported a better-than-expected 21% rise in underlying profits to £2.18 billion for the first quarter as it said it benefited from the improving economy.

However the bank’s bottom-line pre-tax profits were 11% lower at £1.21 billion as it took a £660 million hit from the spin-off of TSB.

Shares rose 3%. Underlying performance was boosted by growth in mortgages and small business lending as well as lower impairments from bad loans.

It also benefited from not adding any further charges to its multi-billion pound bill to cover the payment protection insurance (PPI) scandal in the first quarter, though it would not rule out more in the future.

Reactive complaint volumes fell on the same period last year though were slightly higher than expected. However, Lloyds has £1.7 billion left in its compensation pot to cover claims.

The fall in statutory profits came as Lloyds booked a charge slightly higher than anticipated for costs relating to the TSB sale, including a contribution for the smaller bank to build a new IT system.

Lloyds, still more than a fifth owned by the Government, announced a dividend for the first time in seven years in February as annual profits rose four-fold, and today confirmed it intended to make both half-year and full-year payouts for 2015.

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Chief executive Antonio Horta-Osorio said: “We have made a strong start to the next phase of our strategy to become the best bank for customers and shareholders, as we continue to support and benefit from UK economic growth.

“I am pleased with the continued improvement in financial strength and performance in the first quarter and expect our plan to deliver sustainable growth and improved returns.”

He said the UK economy was expected to continue growing - at up to 3% this year - and added: “I don’t think that the election will change this trend any time soon.”

Lloyds’s spin-off of TSB comes after it revived the brand because of European rules on state aid that mean it was forced to sell off more than 600 branches.

TSB floated on the stock market last year before a £1.7 billion takeover by Spain’s Banco de Sabadell, a move which will see Lloyds Banking Group dispose of all of its remaining 40% stake.

Lloyds was rescued by the Government at the height of the financial crisis. Last month the Treasury announced that the Government stake had been reduced to less than 21%.

Mr Horta-Osorio said this meant it was now less than half what it was originally and that it had now returned £10 billion to taxpayers including dividends.

Chancellor George Osborne said recently he wants a further £9 billion of Lloyds shares to be sold over the next 12 months, including about £4 billion through a discounted offer to retail investors.

Richard Hunter, head of equities at Hargreaves Lansdown stockbrokers, said: “The Lloyds business is looking increasingly healthy, while the strength of the balance sheet and income growth augur well for the proper resumption of the dividend later in the year.”