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Lloyds share price on the up ahead of full-year results

Lloyds Banking Group share price: Pedestrians walk past a branch of Lloyds Bank.

For about three years before the pandemic, the Lloyds Banking Group [LLOY] share price pootled along in the 50-70p range. Then coronavirus hit and, like the rest of the market, Lloyds’ shares fell off a cliff, dropping from 63p at the start of 2020 to a low of 23.58p on 22 September that year. Since then, Lloyds’ stock price has more than doubled.

Just in the last 12 months, the shares are up by around a third, while year-to-date they're up around 3% at just above 51p, slightly below the 52-week high of 56p reached in January. With the bank set to report its full-year results on Thursday, can Lloyds’ shares continue their ascent?

Bellwether Lloyds poised to report surge in profits

Lloyds Banking Group – which owns not only Lloyds Bank but also the Halifax, Bank of Scotland and Scottish Widows brands, among others – is widely seen as a bellwether of the UK economy because of its exposure to British consumers. The FTSE 100-listed company has around 30m customers and is the UK’s largest mortgage lender, making it particularly attuned to the health of the country’s economy. 

It is therefore a positive sign that the bank’s annual profit for 2021 is estimated to have surged to £7.2bn, up from £1.2bn in 2020, in keeping with increased profits across the UK banking sector. Lloyds’ shareholders should be in line to benefit, but amid a national cost-of-living crisis it will be interesting to see whether Lloyds and other UK banks downplay the strength of their annual results. The return of staff bonuses, which Lloyds axed for 2020, could also draw criticism as household incomes face their worst squeeze in decades. 

The bumper profits come as Lloyds, along with England’s other big four banks, namely HSBC, Barclays and NatWest, weathered the pandemic better than expected. At the start of 2021, Lloyds remained cautious, saying that the outlook was still uncertain and warning that the latest lockdown could push some of its customers into financial difficulty. However, the bank also restored its dividend, which proved to be the right call, as a rebounding economy helped maintain loan demand in 2021. 

Profits received a further boost as money earmarked to cover pandemic-era losses was freed up. Lloyds, like its peers, set aside billions of pounds in 2020 to cover expected losses resulting from the pandemic, but in 2021 the bank began to release that emergency money as the expected wave of business closures and redundancies didn’t materialise on the scale that had initially been feared. 

Upcoming results set to cap strong year

In July, Lloyds reported statutory pre-tax profits of £2bn for Q2, lifting half-year profits above expectations to £3.9bn. The bank also announced a dividend of 0.67p a share, and confirmed that it had acquired savings and pensions firm Embark Group for £390m.

In Q3, pre-tax profits again came in at £2bn, double the amount from the year-ago period, bringing year-to-date profits before tax to around £5.9bn. Contributing to those Q3 profits was the release of a further £84m of impairments set aside to cover bad debt at the height of the pandemic, taking total impairments added back on to the balance sheet in the first nine months of the year to £740m.

Interest rates key to year ahead

With Lloyds set to report a strong set of full-year results for 2021, driven by the release of loan-loss provisions and a rebounding UK economy, shareholders will be hoping that bosses deliver a positive outlook for the year ahead as interest rates rise from historic lows. 

Higher interest rates tend to be good news for banks, especially traditional banking outfits like Lloyds, with their focus on mortgages and other forms of lending. Expect the buoyant UK housing market to feature in bosses’ projections for the coming year when they report Lloyds' full-year results and give a strategic update at 7am on Thursday 24 February.

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