Lloyds Banking Group’s profit has taken a hit after the firm set aside additional funds for potential motor finance payouts.
The FTSE 100 lender’s pre-tax profit was down 20 per cent at £6bn, compared to £7.5bn in 2023.
Analysts estimated the bank’s profit before tax at £6.5bn, a predicted 13 per cent drop.
Pre-tax profit also tumbled in the fourth quarter to £824m, a 55 per cent drop from the £1.8bn pocketed in the third quarter.
Lloyds announced it had reserved an additional £700m in provisions regarding the motor finance scandal, following the £450m it had already put aside in February 2024.
The new sum trumps provisions made by Lloyds’ rivals after Santander set aside £295m in November 2024, and Barclays announced it had reserved £90m for potential payoffs last week.
The impact of motor finance commission disrupted the bank’s return on tangible equity, which was at 14 per cent before the provision charge and dropped to 12.3 per cent afterwards.
John Moore, senior investment manager at RBC Brewin Dolphin, said: “Lloyds is rounding off the major UK banks’ results with lower numbers than the market expected.
“Among its peers, Lloyds is the most exposed to the UK, and mortgage lending in particular – motor finance provisions, falling interest rates, and a sluggish housing market were always going to be immediate challenges.”
However, Moore said Lloyds remains in a “good position”.
“But, as ever with Lloyds, the reasonable question to ask is: what’s next? The big opportunity is in what the bank refers to as ‘other’ income, which now accounts for £5.6 billion.”
Lloyds announces £1.7bn share buyback
Despite the drop in income, Lloyds announced it would implement a share buyback scheme of up to £1.7bn.
The bank also announced a total ordinary dividend of 3.17 pence per share, up 15 per cent from the prior year.
Elsewhere, Lloyds’ net interest margin reduced by 16 basis points over the last year to 2.95 per cent.
This was in line with full-year guidance.
Earnings per share fell to 6.3p, down 1.3p since 2023.
Commenting on the results, group chief executive Charlie Nunn said: “In 2024 we continued to Help Britain Prosper, delivering for our customers, shareholders and wider stakeholders.”
Nunn added: “Looking forward, we are building momentum as we enhance our franchise and deliver differentiated outcomes for our customers.
“Our strategy is transforming our capabilities, enabling us to deepen relationships with our customers, grow in high value areas and drive cross-Group collaboration.
“We are confident of generating more than £1.5bn of additional income from our strategic initiatives by 2026 as we build towards higher, more sustainable returns.”