Lloyds Earnings: Retail Deposit Outflow Stopped and Default Rates Improving

Lloyds reported first-quarter underlying profits of GBP 1.757 billion, slightly ahead of the GBP 1.746 billion consensus collected by Lloyds prior to the release. Net interest income declined 10% as the bank’s net interest margin continued to drift to 295 basis points from 322 basis points a year ago. Positively, the retail deposit outflow has stopped as current and savings account balances increased marginally. As such, headwinds on NIMs are waning, supporting Lloyds’ 2024 guidance of NIM above 290 basis points. Operating costs increased 11% due to higher severance charges as well as a higher levy by the Bank of England. Asset quality was within expectations at 23 basis points excluding reversals. Lloyds also called out improving default rates, which is a positive sign for the bank’s credit quality outlook. We maintain our GBX 77 per-share fair value estimate and narrow moat rating.