Lloyds resumes dividends, posts lower profit

Lloyds Banking Group said it would resume dividend payments for shareholders as it posted its annual results with £792m in pretax profit, down from £1.4bn in the previous year.

The bank’s net income was down to £3.59bn from £4.13bn in the previous year. It reported a £4.2bn impairment, an increase of £3bn compared to 2019 driven by charges in the first half, which reflected potential future losses.

The results showed a £128m charge for the fourth quarter, “below typical pre-crisis levels” and indicative of a period of relative economic stability, Lloyds said in its 24 February statement.

Group chief executive António Horta-Osório noted the impact of the pandemic but added that the bank is now seeing growth in its open mortgage book of £10.2bn in the second half of the year with total deposits up £39bn. The bank confirmed resumption of a dividend of 0.57p per share.

The lender, aided by a stronger housing market alongside government-supported loans for business borrowers, said its decision to continue with dividend payments is a result of its strong capital position, taken together with the regulator’s clarification that banks may resume payouts.

The Bank of England’s Prudential Regulation Authority had previously advised banks against issuing dividends as the pandemic became more serious over the course of 2020, in an effort to ensure stronger balance sheets and capital buffers were in place as Covid restrictions forced businesses to slow down or stop altogether in several sectors.

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“Looking forward, significant uncertainties remain, specifically relating to the coronavirus pandemic and the speed and efficacy of the vaccination programme in the UK and around the world,” Horta-Osório said.

The UK’s largest mortgage lender’s loans and advances to customers remained flat on the previous year, at £440bn, with growth in the open mortgage book and government-backed lending of £11.1bn, which offset balances in unsecured retail, corporate and institutional, and the closed mortgage book.

Commenting on the results, Steve Clayton, fund manager at Hargreaves Lansdown Select said: “The headline numbers are fine. The group saw an improvement in revenue trends as the year progressed and bad debts came in below worst expectations.”

He added: “Lloyds’ plans are pretty predictable; keep squeezing costs and hold bad debts at manageable levels, whilst driving digital capabilities forward. But the group sees little progress on margins and growth expectations are modest. The dividend announced today is the highest amount Lloyds could pay under the current regulations – yet its ability to pay more is not in doubt.

“With substantial excess capital Lloyds should be capable of paying significantly higher dividends, once regulators allow.”

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