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Lloyds (LLOY.L) has reported a significant 20.4% drop in its annual profit, falling short of market forecasts, as the bank set aside additional funds for potential motor finance payouts.
The UK’s largest mortgage lender revealed a pretax profit of £5.97bn ($7.5bn) for the year 2024, down from £7.5bn in 2023. Analysts had predicted a slightly higher profit of £6.39bn, according to a consensus compiled by Reuters.
The bank attributed the decline to the impact of interest rate cuts on lending margins and the ongoing sluggishness in Britain’s economic recovery.
Net interest margin — the difference between savings and loan rates — fell 16 basis points to 2.95%.
Underlying net interest income fell 7% to £12.8bn amid falling interest rates. Pre-tax profit also tumbled in the fourth quarter to £824m, a 55% drop from the £1.8bn achieved in the previous quarter.
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Despite the overall downturn, the bank’s net income for the fourth quarter of fiscal 2024 rose by 3.4%, reaching £4.37bn compared to the same quarter in the previous year.
However, underlying profit for the quarter plummeted by 43.1% year-on-year to £993m, while earnings per share stood at just 1 pence, a 41.2% decline compared to the same period in 2023.
Lloyds has included a £700m provision for potential remediation costs relating to motor finance commission.
Including the £450m provided in 2023 results, Lloyds said the total of £1.15bn represented its best estimate of the potential impact, including both redress and operational costs.
It said significant uncertainty remains around the final financial impact.
Despite the additional provision, Lloyds has increased its dividend for the year by 15% to 3.17p. This includes a full-year distribution of 2.11p.
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It also intends to implement a share buyback programme of up to £1.7bn as it continues to return excess capital to shareholders.
Chief executive Charlie Nunn said: “The group delivered a robust financial performance in 2024.
“Pleasingly and as expected, income grew in the second half of the year, supported by a rising banking net interest margin and momentum in other income.”
Lloyds reported that its loans and advances to customers rose by £10.2bn to £459.9bn last year, including £6.1bn growth in UK mortgages. Customer deposits “significantly increased” in the year by £11.3bn, to £482.7bn.
Richard Hunter, head of markets at Interactive Investor, said: “Lloyds finds itself in the midst of attacks from several angles, but all things considered is standing up defiantly to the challenges.