Lloyds profits take hit after more money put aside for defaults

theguardian.com:

Lloyds Banking Group has revealed it is struggling to boost profits, amid fears that soaring inflation could lead to a jump in defaults on loans and mortgages.

The country’s largest mortgage lender, which is considered a bellwether for the British economy, took a £200m charge between April and June as it put aside more money to protect the bank from potential defaults. That compares with the £374m it released during the same period last year.

It comes as UK households are squeezed by soaring inflation,which hit a fresh 40-year high of 9.4% last month and could make it harder for borrowers to keep up with payments long term. However, Lloyds assured that so far, the number of customers in arrears remained at “low levels”.

The charge mostly offset a boost in income from loans and mortgages, linked to a jump in interest rates, with pre-tax profits coming in at just over £2bn for the three months to the end of June, in line with the same period last year. It exceeded analyst estimates, which had forecast profits of £1.6bn.

UK banks have largely benefited from nine consecutive months of interest rate rises by the Bank of England, where policymakers have been trying to getsoaring inflation under control.

Rising rates are usually good news for bank finances, since they are able to charge borrowers more for loans and mortgages, and ultimately increase their net interest margins – a key measure of profitability and growth.

The bank’s net interest margin – which measures the difference between what it earns from loans and pays for deposits – rose to 2.87% in the second quarter compared with 2.5% last year.

Lloyds’ chief executive, Charlie Nunn, cheered the bank’s performance, saying it demonstrated the “resilience” of its business model.

“