Lloyds Banking Group has reported a surge in its half-year profit as it benefits from higher borrowing costs. But it is bracing for losses as mortgage holders fall into arrears.
It says it made a statutory pre-tax profit of £3.9 billion in the six months to the end of June - 23% higher than the £3.1 billion reported the same time last year.
Britain's biggest mortgage lender has benefited from the higher interest rates imposed on customers as a result of the Bank of England hiking the base rate several times in a bid to tackle inflation.
As a result, the banking group, which includes Lloyds Bank, Halifax and Bank of Scotland, enjoyed a boost in its income and a higher net interest margin - the difference between what it earns from loans and pays out for deposits.
However, Lloyds is expecting losses from bad loans and has set aside a £662 million impairment charge in the latest half-year to cover it. That's on top of the £1.5 billion it wrote off last year.
UK mortgage holders falling into arrears increased in the latest period, Lloyds revealed, indicating that more borrowers have struggled with higher repayments as interest rates have risen.
Charlie Nunn, group chief executive of Lloyds, said: “We know that rising interest rates, cost-of-living pressures and an uncertain economic outlook are proving challenging for many people and businesses.
“The group delivered a robust financial performance in the first half of 2023 with strong net income and capital generation alongside resilient asset quality.
“We continue to make good progress on delivering our strategic initiatives. Combined with our franchise resilience, this better positions us to support our customers, both today and in the future.”
Mr Nunn has also weighed in on the resignation of NatWest Group chief executive Dame Alison Rose. who admitted to being the source of an inaccurate story about Nigel Farage's finances.
The BBC apologised to the GB News presenter and former for reporting that Mr Farage no longer met the financial requirements for an account with Coutts, which is owned by the Natwest Group.
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But the former UKIP and Brexit Party leader later obtained a dossier showing the private bank had partly decided to close his account because his political views did not align with the company's "values".
Mr Farage called for a “cultural change” at NatWest and within the wider industry, as he promised to continue to campaign on account closures.
"I think this culture runs deep through the entire banking industry. I think there is a massive anti-Brexit prejudice and I think the whole thing needs to change," he added.
But Mr Nunn has insisted the UK banking industry does not need to significantly change de-banking policies despite Mr Farage's ordeal.
He stressed Lloyds primarily considers financial crime risks when closing a customer’s bank account, and does not consider their political beliefs.
“At this stage, I have no concerns that the government, or what we’re being asked to do, conflicts with our ability to protect the UK economy and customers from economic crime," he added.
It follows the Treasury announcing stricter rules for banks when it comes to forcibly closing a customer’s account. He added: “In terms of lessons from the current environment… financial services is core to how the economy operates, it’s a hugely important service for the economy, for people’s everyday lives, and it’s politically very important. “We know which society we’re supporting, we know our role in society, and we take it very seriously.”