Lloyds Banking Group Beats Views Despite Car-Loan Provision Hit — Update

By Elena Vardon

Lloyds Banking Group reported third-quarter results ahead of analyst expectations and nudged up its income guidance, despite booking heavy provisions linked to a probe into car-loan commissions.

The U.K.'s largest mortgage provider on Thursday reported a pretax profit for the three-month period of 1.17 billion pounds, a 36% on-year drop that still beat a 1.04-billion pound estimate taken from a company-compiled consensus.

The decline was driven by a 37% increase in costs, which included a 800 million-pound provision linked with potential payouts and the administrative costs of compensating customers as part of an industry-wide redress program related to the car-loan probe. The extra charge was disclosed earlier this month and incorporated in analysts' estimates. Lloyds, as the largest car-finance provider in the country through its Black Horse brand, has earmarked 1.95 billion pounds in total for the provision.

This offset top-line improvement from growth in retail and commercial lending and higher deposits in the quarter. The lender reported net interest income--the difference between what banks earn on loans and pay out on deposits--7% higher than a year prior at 3.45 billion pounds. Including revenue from other sources, total net income increased 7% on year to 4.64 billion pounds. Both figures were slightly ahead of estimates.

Lloyds, like its U.K. peers, has a structural hedge in place to mitigate the impact of interest-rate moves which allows it to continue to benefit from tailwinds as rates are cut. The bank's net interest margin came in at 3.06% compared with 2.95% a year prior.

Finance chief William Chalmers told reporters that the macroeconomic picture in the U.K. is one of stability, in continuity with the second quarter.

The group adjusted its earnings guidance for the year. It now forecasts that net interest income will come in around 13.6 billion pounds for 2025, compared with 13.5 billion pounds previously. Still, it cut its view for return on tangible equity--a key profitability metric--to around 12%, against 13.5%. Excluding the car-finance impact, it sees the metric at 14%.

The bank still expects total operating costs to modestly exceed 9.7 billion pounds including the fourth-quarter impact of its recent acquisition of Schroders Personal Wealth. Earlier this month, Lloyds took full ownership of the joint venture by swapping the stake it didn't already own for its stake in Schroders's private wealth management division Cazenove Capital, in a bid to strengthen its asset management and advice proposition.

Shares were flat, with a slight dip into the red, in morning exchanges in London. The stock has rallied 54% since the start of the year.

"Ultimately these numbers were very in-line, clearing the way for what we expect to be a much more exciting update early next year," Jefferies analysts said in a note to clients.

Its common equity tier 1 ratio--a measure of balance-sheet strength--was flat at 13.8% at the end of the quarter.

Write to Elena Vardon at elena.vardon@wsj.com

(END) Dow Jones Newswires

October 23, 2025 05:05 ET (09:05 GMT)