Lloyds Banking Group recorded a rare pre-tax loss in the first half of 2020, after setting aside a larger-than-expected provision of £ 2.4 billion in the second quarter to cover a potential increase in bad debts due to the coronavirus.
The hefty provision, which was 60% higher than average analyst estimates, came as it drastically revised its models for the worst-case scenario for the UK economy as it grappled with the fallout from the pandemic .
The UK’s largest national bank, seen as an indicator for the economy at large, said it had taken on a darker outlook and considered the impact of the foreclosure measures to be “much greater” provided that.
He said UK GDP could decline 17.2% on the year, down from a 7.8% drop previously modeled as the worst possible outcome of Lloyds’ first quarter results in April.
Under the new accounting rules known as IFRS 9, banks are required to disclose these best-to-worst-case economic forecasts, which they weight according to probability and use to determine the amount to be spent. aside for loan losses.
Lloyds’ baseline scenario for GDP decline in 2020 remained unchanged at 5%.
The new charge pushed Lloyds’ provisions for the first half of the year to £ 3.8bn, resulting in a pre-tax loss of £ 602m.
Lloyds shares fell as much as 8% before recovering to be down 3.5% against a stable Ftse 100 index.
Cost for group
Lloyds said he has loaned more than £ 9 billion to businesses through various government-backed relief programs and granted more than 1.1 million payment holidays to consumers affected by the pandemic, but his supporting these clients “will come at a cost to the group”.
Europe’s big banks this week counted the cost of probable bad loans due to the pandemic, with Spain’s BBVA also forecasting additional provisions on Thursday.
Lloyds’ domestic rival Barclays posted a higher-than-expected provision of £ 1.6bn on Wednesday, while a big charge to Spain’s Santander took him to a record quarterly loss.
Lloyds loss to pre-tax profits of £ 2.9 billion last year. The bank posted a statutory after-tax profit of £ 19million, largely thanks to tax credits earned on some of its most valuable assets.
Its net interest margin – a key measure of loan profitability – fell 20 basis points to 2.59% in the three months to the end of June, as interest rates hover just above zero and the demand for loans and mortgages is weakening.
Half-year revenue fell 16% to £ 7.4 billion, in line with expectations.
The lender is looking for a new chief executive to help it weather the economic fallout from the pandemic, after Antonio Horta-Osorio said earlier this month he would step down by the year next after a decade at the helm of the bank.
Mr Horta-Osorio told reporters he currently has no plans for what he will do after leaving Lloyds and plans to present an update to his strategy in February. – Reuters