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Lloyds posts decent results, but warns on inflation

Lloyds Banking Group share price: A sign outside a branch of Lloyds Bank displays the bank's famous black horse logo.

Lloyds Banking Group's [LLOY] update this morning pointed to a resilient performance in the first quarter. Investors reacted favourably, pushing the shares up 2% in early trading to a three-week high. However, the shares are struggling to overcome the 200-day moving average which has so far capped the rebound from the March lows.

Q1 results highlight resilience

The group's statutory profit after tax came in at £1.2bn in Q1, a modest fall from the year-ago period, partly because of a £177m impairment in relation to the impact of rising inflation.

Operating costs also rose slightly from a year ago but were down compared to Q4, coming in just shy of £2.1bn. Banking net interest margin also continued to improve, rising to 2.68%, up from 2.49% a year ago.

Across the business, loans and advances to customers rose £3.2bn to £451.8bn, while customer deposits rose £4.8bn.

Cautious outlook

Looking ahead, Lloyds said it was boosting its guidance on net interest margin to 2.7%, and raising the return on tangible equity to above 11%.

However, the bank warned of the risks posed by rising inflation, with higher prices set to hit its customers hard. Management added that they are proactively engaging with customers who may be particularly vulnerable.

Stuttering shares confound investors

The performance of the Lloyds share price since Covid-19 sent the UK into its first lockdown in March 2020 has been one of the financial world's big mysteries. The shares remain well below pre-pandemic levels, yet the bank continues to return much better numbers than before the arrival of coronavirus. 

When the bank reported its full-year 2021 results in February, profits came in at £6.9bn – slightly below expectations of £7.2bn, but still a big increase on the 2020 figure of £1.2bn.

The miss on annual profits in 2021 was partly due to to a surprise increase in operating costs, which rose above £2bn in Q4, up from £1.87bn in Q3. The investor reaction sent the shares down to a 12-month low, though concerns over Russia’s invasion of Ukraine also played a role.

After rebounding in March, the shares slipped back again in April on concerns over UK banks' readiness for a tougher economic outlook and the risk of loan defaults as customers face financial hardship brought on by the cost of living squeeze. 

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