By Iain Withers and Sinead Cruise
LONDON (Reuters) – Lloyds Banking Group’s pretax profit was all but wiped out in the first quarter, after it joined the list of lenders hobbled by provisions against expected bad loans due to the coronavirus pandemic.
Britain’s biggest domestic bank on Thursday reported pre-tax profits of 74 million pounds, down from 1.6 billion pounds the previous year, hit by a 1.4 billion pounds ($1.75 billion) loan impairments charge.
The figure was sharply below the 863 million pounds average of analysts’ forecasts compiled by the bank, sending shares as much as 6% lower in early trading. Shares were down 2.8% at 0846 GMT, compared with a 0.1% fall in the FTSE 100.
Lloyds is viewed as a bellwether for the British economy, as the country’s largest provider of home loans and one of its biggest backers of businesses.
“Despite the outlook remaining challenging and uncertain, we are well placed to play our part and help Britain recover from this crisis,” Chief Executive Antonio Horta-Osorio told reporters.
But Lloyds warned it expected to be hit by further impairments, particularly if the UK economy shrinks by more than its base case of 5%. The Office for Budget Responsibility, Britain’s official forecaster, has pencilled in a 13% decline in 2020.
The bank also abandoned forecasts on various performance metrics it set out in February, which included an increase its return on equity to 12 to 13%, saying that guidance was no longer appropriate given the harsher environment.
Lloyds’ results would have been even worse but for a tax credit of 406 million pounds in the period, which the bank said was due to lower profits and an uplift from deferred tax assets.
Like other lenders, Lloyds scrapped its proposed 2019 dividend payout earlier this month at the behest of Britain’s top financial regulator.
It said its board will decide on any future distributions at year-end 2020.
“Despite there being no income for investors in the immediate future, the bank is on an undemanding valuation and its likely ability to weather a crisis such as this provides some longer term comfort,” said Richard Hunter, Head of Markets at Interactive Investor.
Britain’s banks have faced heavy criticism for their slow progress in supplying 330 billion pounds’ worth of state-guaranteed loans to businesses buckling under the pressure of a near-shutdown in the UK economy.
Lloyds said it had provided 880,000 loan repayment holidays across all its product lines and issued 3,752 loans with an aggregated value of 500 million pounds via the Coronavirus Business Interruption Loan Scheme (CBILS).
But it is still lagging behind rivals RBS, HSBC and Barclays, despite being Britain’s biggest provider of loans to small companies.
Lloyds has a 24% market share of relationships with small business borrowers, data from business insights provider RFi Group sent to Reuters shows.
Rival RBS, with a 14% share, has provided 1.4 billion pounds of CBILS loans, nearly three times the value of Lloyds.
Horta-Osorio said the bank was stepping up its support for businesses, but said companies preferred repayment holidays to taking on CBILS debt, by a ratio of 10:1.
“You have to give customers what they want,” he said, adding that the launch of a lending scheme offering loans that are 100% guaranteed by the government would help plug a gap in support for small firms.
Lloyds reported a 2.7 billion pound increase in loans and advances to 443.1 billion pounds over the period, which it said was driven by drawdowns of existing corporate debt facilities.
HSBC and Barclays have also set aside billions of pounds to cover an expected spike in bad loans due to the coronavirus outbreak, with state-backed RBS expected to follow suit on Friday.
($1 = 0.8013 pounds)
(Additional reporting by Lawrence White. Editing by Jane Merriman)