Lloyds (LSE: LLOY) (NYSE: LYG.US) has staged an impressive recovery this year and the bank’s recent return to profitability, is testament to management’s hard work put in since the financial crisis.
However, the bank is not ready to rest just yet. Now Lloyds’ recovery is almost over, the bank is gearing up for a period of rapid growth, which will make the lender one of the industry’s fastest growing companies.
Housing boom
Lloyds is the UK’s largest retail bank, so the group’s fortunes have always been dependent upon the state of the UK economy. And with the economy booming, Lloyds is set to profit.
One of the markets that Lloyds’ is set to benefit most from is the recovering housing market. Lloyds believes that the UK needs an additional 60,000 new, affordable homes, in order to tackle the current housing shortage. So to help, the bank is setting up a £50m equity fund for small homebuilders, providing equity for construction projects across the country.
Lloyds itself is set to benefit from this equity fund, as the bank is one of the UK’s largest mortgage lenders. The more homes that are built and snapped up by buyers, the more mortgages Lloyds can sell, increasing the bank’s level of interest income.
Fat profits
Growth generated by an improving housing market will come in addition to the growth already predicted by City analysts. Indeed, City analysts expect the bank to report earnings per share of 7.7p this year, followed by 8.2p next year, which is hardly explosive growth but is all the more impressive when you consider that Lloyds reported a loss per share of 1.2p last year.
Further, Lloyds’ management is going to set out a new three-year plan next week. It’s widely expected that that this plan will see Lloyds cut costs across the group and improve the bank’s offering to customers. Specifically, Lloyds is likely to close a number of its high-street branches, instead placing a premium on the bank’s digital offering.
Due to a commitment made as part of Lloyds’ merger with HBOS, the bank has been unable to reduce its high-street presence. However, this agreement runs out in December. As a result, a number of branch closures are likely to be on the cards.
Foolish summary
So, a combination of high levels of leading, along with cost cutting to improve margins should boost Lloyds’ income. However, the bank has to be careful that it does not alienate customers along the way. But investors shouldn’t worry, as well as boosting probability, improving customer relations is a key goal for Lloyds’ management going forward.
