Skyrocketing expenses for Lloyds due to heightened provisions following turbulence in tariffs
Updated Financial Struggles for Lloyds Banking Group
Lloyds Banking Group, the financial giant housing Lloyds, Halifax, and Bank of Scotland, witnessed a dip in profits during the initial quarter of the year. The pre-tax profit stood at £1.5bn, marking a 7% decrease from the same quarter in 2024. The shares dropped nearly 2% during early trading on Thursday.
The increased costs drove the profit woes, with operating expenses surging by 6% to £2.6bn. This growth was attributed to an uptick in strategic investments and costs associated with growth initiatives, including planned redundancies for the first quarter.
The company incurred an impairment charge of £309m, in stark contrast to the £57m reserved in the same period of the previous year. This charge included a £100m adjustment to address the risks posed by President Donald Trump's erratic tariff policies announced in April.
Loans and advances to customers increased by £7.1bn to £466.2bn, and net income grew by 4% to £4.4bn. However, these gains were offset by the rising expenses. Net interest income remained stable at £3.3bn, similar to the earnings from the fourth quarter of 2024.
Costs were impacted by inflationary pressures, with the bank's domestic-leaning model relying heavily on net interest income as Britain's largest mortgage lender. Lenders enjoyed record profits in 2024 on account of post-financial crisis high interest rates. However, the Bank of England has since slashed rates to 4.5% in 2025, with analysts predicting four further cuts for the year.
Matt Britzman, a senior equity analyst at Hargreaves Lansdown, stated, "Lloyds' first-quarter results fell short of expectations, but only slightly. Higher impairments were to blame, mainly due to economic uncertainties rather than problematic borrowers. Default rates across the portfolio remain in excellent health, and the management expressed optimism about the year ahead."
Unresolved Scandals
In contrast to evading significant hits during Trump's tariff onslaught, Lloyds has been embroiled in another controversy as it waits for the Supreme Court's ruling on motor finance. The bank has set aside £1.2bn in provisions for the car mis-selling scandal, which stems from the Financial Conduct Authority's investigation into discretionary commission agreements. These agreements enable brokers to effectively set their own interest rates.
Lloyds' Q4 2024 profit dipped to £824m, reflecting the provisions made for the motor finance controversy. The financial watchdog claimed the scandal could save customers £165m annually, while analysts predict a worst-case scenario could put Lloyds on the hook for £4.6bn.
Lloyds is also streamlining its branch network, closing 27 sites in May, and reviewing over 6,000 tech and engineering jobs to modernize its banking offer.
Charlie Nunn, Lloyds' chief executive, said, "We are progressing well with our strategic transformation, offering innovative solutions to meet our customers' financial needs and aspirations. This will help strengthen our financial performance and serve all of our stakeholders effectively."
- The increased volatility in the banking-and-insurance industry, such as the controversies surrounding motor finance and tariff policies, may have a significant impact on the future business of Lloyds Banking Group.
- In 2025, experts predict four further interest rate cuts, which could potentially increase expenses and affect the net interest income of banks like Lloyds, considering their reliance on this income.
- The costs of Lloyds Banking Group surged by 6% to £2.6bn in Q1 of the year, primarily due to strategic investments, growth initiatives, and planned redundancies.
- The 2025 financial results for Lloyds Banking Group, while falling slightly short of expectations, were impacted more by higher impairments due to economic uncertainties than problematic borrowers.
- Despite the ongoing scandals and the dip in profits, Lloyds Banking Group remains optimistic about its future, focusing on offering innovative financial solutions to meet customers' needs and aspirations, aimed at strengthening its financial performance and effectively serving all stakeholders.
