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Lloyds profits shrink by a fifth as car finance saga drives up provisions

by February 20, 2025
February 20, 2025
Lloyds profits shrink by a fifth as car finance saga drives up provisions

Lloyds Banking Group has posted a 20 per cent drop in annual pre-tax profits for 2024, missing City forecasts amid rising costs and one-off charges linked to the ongoing motor finance commission scandal.

The FTSE 100 lender recorded profits of £5.97 billion last year, down from £7.5 billion in 2023 and below analyst expectations of £6.4 billion.

Lloyds’ income was dented by a lower net interest margin — essentially the difference between interest income from lending and the costs of funding — in an environment of falling rates. The bank has also taken heavier remediation and impairment charges, including an additional £700 million linked to disputes around undisclosed or “partially disclosed” commissions in car loans.

This latest set-aside brings the lender’s total provision for possible motor finance compensation to £1.15 billion, though Lloyds cautioned there remains “significant uncertainty” over the final outcome. The charge is connected to a Court of Appeal judgment involving three consumers — Wrench, Johnson and Hopcraft — who challenged the liability of lenders when credit brokers such as car dealers arrange a hire-purchase agreement but fail to fully disclose commission details.

Charlie Nunn, chief executive of Lloyds, noted that the £700 million provision was prompted by the appeal court ruling, which goes “beyond the scope of the original FCA motor finance commissions review”.

In spite of these headwinds, Lloyds reported loans and advances to customers rose by £10.2 billion last year to £459.9 billion, with UK mortgages increasing by £6.1 billion. Deposits grew by £11.3 billion to £482.7 billion, reflecting solid customer confidence in the UK’s largest high street bank. Encouragingly, Lloyds also revealed an improved economic outlook, buoyed by recent house price growth and a more favourable assessment of risks such as inflation and interest rate volatility.

According to Matt Britzman, senior equity analyst at Hargreaves Lansdown, the extra £700 million provision has “clouded” what was otherwise a strong fourth quarter. However, Britzman highlighted that “Lloyds has managed to improve its loan quality over the course of the year, defying fears that borrowers would buckle under the pressure of persistent inflation.”

Despite the profit miss, the bank’s share price has climbed more than 40 per cent over the past 12 months, reflecting a generally upbeat sector outlook and consistent performance away from the motor finance charge.

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Lloyds profits shrink by a fifth as car finance saga drives up provisions

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