Lloyds Banking Group Posts Strong Profit Despite Motor Finance Provision

Lloyds Banking Group PLC experienced a decline in profits in the fourth quarter of 2023, primarily due to a significant provision made to cover potential costs of a motor finance probe. Despite this setback, the UK’s largest lender remains optimistic and is planning a £2 billion share buyback after a strong year.

The bank reported underlying pre-tax profits of £1.75 billion for the final quarter, in line with City estimates but down 14% from the third quarter. This decrease was attributed to a £450 million provision made to cover the potential impact of the recently announced Financial Conduct Authority review into motor finance commission arrangements. Nonetheless, total profits for the full year amounted to £7.8 billion, up 11% from the previous year and in line with analyst expectations.

In a move to reassure shareholders, Lloyds increased its dividend by 15%, with a final dividend of 1.84p per share, bringing the total to 2.76p for the year. Additionally, given the bank’s strong capital position, the board announced plans for a buyback of up to £2 billion, resulting in total capital returns for the year of £3.8 billion, equivalent to 14% of the bank’s market cap.

Chief Executive Charlie Nunn expressed satisfaction with the bank’s financial performance and its progress towards the ambitious 2026 strategic outcomes, attributing the positive results to income growth, cost discipline, and strong asset quality. Nevertheless, despite the positive financial performance, shares in the bank fell by 1.7% to 42.54p in the first half-hour of trading.

Financial analysts also commented on Lloyds’ performance and prospects. Gary Greenwood at Shore Capital viewed the buyback as a positive surprise, despite the uncertainty surrounding the motor finance review. On the other hand, Max Georgiou, an analyst at Third Bridge, highlighted the potential challenges posed by the FCA review, particularly in relation to Lloyds’ exposure and its return on tangible equity targets in the future.

In conclusion, Lloyds Banking Group’s financial performance in 2023 demonstrates its resilience and strategic progress, despite the challenges posed by the motor finance provision. With a solid capital position and a clear roadmap for growth, the bank is well-positioned to navigate future uncertainties and deliver sustainable returns for its shareholders.