Lloyds (LON:LLOY) profits surge: bank upgrades forecasts

The Lloyds share price is rising after the bank issued a strong set of Q3 results. Roland Head takes a look at the numbers.

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The Lloyds Banking Group (LSE: LLOY) share price rose by nearly 3% in early trading this morning. The gains came after the bank announced a third-quarter profit of £1,600m, more than double the same period last year.

With the housing market boom continuing, Lloyds added £2.7bn of new mortgage lending during the quarter. Customer deposits were also higher, rising by £4.7bn to £479.1bn.

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The increase in lending helped to drive an improvement in Lloyds’ net interest income and its net interest margin. This represents the difference between interest received on loans and interest paid out on deposits. It’s a key measure of profitability for banks.

Losses from bad debts continue to be smaller than expected, providing a further lift to profits. Last year, Lloyds set aside £4,247m for potential bad debts. So far this year, the bank has released £740m of this amount, including £84m in the third quarter.

2021 guidance upgraded

CEO Charlie Nunn has now upgraded the bank’s financial guidance for 2021, suggesting profits for the full year will be slightly higher than previously expected.

There was no word today on plans for this year’s dividend or any share buybacks. But the bank’s strong performance so far this year means that it now has significantly more capital than it needs.

Today’s third-quarter results show that Lloyds had a Common Equity Tier 1 ratio of 17.2% at the end of September, nearly 5% ahead of its ongoing target of 12.5%. In general, a bank’s ability to pay dividends is based on the amount of surplus capital it has available.

Ahead of today’s results, Lloyds shares offered a forecast dividend yield of 4.5%.

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Roland Head has no position in any of the shares mentioned. The Motley Fool UK has recommended Lloyds Banking Group. Views expressed on the companies mentioned in this article are those of the writer and therefore may differ from the official recommendations we make in our subscription services such as Share Advisor, Hidden Winners and Pro. Here at The Motley Fool we believe that considering a diverse range of insights makes us better investors.

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