Bank of Scotland owner Lloyds sees profits surge ahead of higher Budget levy

The banking giant reported a pre-tax profit of £2.3 billion for the third quarter, up from the £1.2bn it made in the same period a year earlier. Last year’s profit figure was affected by the group setting aside an extra £800 million provision to cover costs related to the UK watchdog’s ongoing motor finance scheme, to compensate people mis-sold a car loan. The scheme is currently on hold while it faces legal challenges in court.

Stripping out that impact, earnings still strengthened year-on-year with Lloyds generating more income during the quarter.

Underlying net interest income, which shows the difference between what banks make from loans and what they pay out on deposits, jumped by 10 per cent year-on-year.

The results for Lloyds, which also owns Scottish Widows, came a day after the Chancellor announced in his autumn Budget statement that banks would have to pay a temporary extra 3 per cent on their corporation tax surcharge, double the current rate, from January. The measure is expected to raise an extra £1.5bn for Treasury coffers over the 15 months it is in place, according to the Office for Budget Responsibility.

Nick Sherrard, managing director of Edinburgh-based consultancy Label Sessions, said: “Lloyds’ income is growing, costs are tightly controlled, credit quality remains stable, and capital generation is strong. Those are all signs that the transformation of the past five years has largely delivered what it set out to achieve and the bank is, to all intents and purposes, running efficiently and in line with guidance.

“The more interesting question right now is what Lloyds does with that solid foundation. As it prepares to launch its next chapter, investors will be looking beyond efficiency metrics and asking what the bank is going to do to drive its next phase of growth.”

Richard Hunter, head of markets at Interactive Investor, noted: “With provisions for the motor finance investigation all now but buried and with higher income flowing through, Lloyds has enjoyed a bumper quarter which puts the bank in prime position to meet its full-year targets.”