February 22, 2017 / 9:23 AM / 5 months ago

Lloyds profit hits 10-year high as bank approaches full recovery

FILE PHOTO - People walk past a branch of Lloyds Bank on Oxford Street in London, Britain July 28, 2016.Peter Nicholls/File Photo

LONDON (Reuters) - Lloyds Banking Group reported its highest full-year profit in a decade on Wednesday, as the taxpayer-backed bank nears a complete recovery from its crisis-era past.

Britain's biggest mortgage lender said pretax profit was 4.2 billion pounds ($5.25 billion), more than double the 1.64 billion pounds booked in the same period a year earlier.

The profit is a boost to the British government as it aims to return Lloyds to full private ownership in the next few months after the bank was rescued in a 20.5 billion pound taxpayer bailout during the 2008 financial crisis.

Lloyds, which is most exposed among the major British banks to any downturn in the economy, has continued to confound expectations that the economic upheaval caused by last year's vote to quit the European Union would squeeze profits.

"Our performance is inextricably linked to the health of the UK economy which has been more resilient than the market expected post referendum," the bank said in a statement.

Lloyds' higher profit was driven by lower provisions to compensate customers mis-sold loan insurance after the bank set aside what it hopes will be a final 1 billion pound provision last year.

The bank has so far set aside more than 17 billion pounds to pay customers back the cost of the insurance, more than any other bank, in what is Britain's costliest consumer scandal.

Total income was slightly below last year and there was a 14 percent increase in bad loan charges in an early warning that some customers could be struggling to cope with post-Brexit economic uncertainty.

The bank said its net interest margin - a key performance measure – had widened to 2.71 percent over the period.

Lloyds said it would pay a total dividend of 3.05 pence, up 11 percent on last year.

The government's stake in Lloyds has now fallen to below 5 percent.

This means at the current rate the government is selling down its stake it should be fully returned to private ownership by around May.

($1 = 0.8005 pounds)

Reporting By Andrew MacAskill

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