Lloyds Banking Group has given up hope of a profit-boosting rise in interest rates before 2020, the UK's biggest mortgage lender said today.
This comes after surprise one-off costs led it to miss quarterly earnings forecasts despite robust underlying profits.
Lloyds reported first-quarter after-tax profits of £1.2 billion, up from £1.17 billion in the same time last year but below analysts' average forecast of £1.39 billion.
A drop in home loans and a £339m one-off charge for "volatility" - that included costs linked to a legal dispute with asset manager Standard Life Aberdeen - sent Lloyds shares lower today.
Lloyds also reported a further £100m charge to cover administrative costs linked to a fresh surge in requests for information on possible payment protection insurance claims ahead of an August deadline for payouts.
The bank's chief financial officer George Culmer said the bank believed an interest rate rise had been pushed back.
"Our planning assumption was that we expected a rate rise towards the back end of this year. The market is now pushing that out further into next year and beyond. And I probably think our thoughts would be moving with the market as well," he said.
Mortgage lending was down £4.9 billion on the previous year in the face of tough competition, partly offset by growth in unsecured credit markets including motor finance.
"Our expectation is by the end of the year we'll be back in line in terms of balances and we expect to close 2019 with mortgage balances in line with the end of 2018," Culmer said.
"So that will probably be slightly below market growth but that's reflective of the competitive market out there at the moment," he added.
With one-off costs stripped out, the bank reported underlying profit of £2.2 billion, up 8% on the previous year and beating expectations of £2.05 billion.
The results follow disappointing first-quarter results from Royal Bank of Scotland and Barclays, which blamed falling margins on intensifying competition in mortgages and slowing business investment due to Brexit uncertainty.
Lloyds said that while Brexit could further impact the economy, it had seen no deterioration in the quality of assets on its loan book and reaffirmed all its financial targets.
The bank's core capital ratio - a key measure of financial strength - increased to 14.2% on a quarterly basis, up from 13.9%.
Lloyds received a boost yesterday after regulators at the Bank of England said it could hold a lower capital buffer against future risks.
This gives Lloyds a further £1 billion of excess capital which analysts said could be returned to investors.
Culmer told reporters the bank would decide what to do with the excess capital at the end of the financial year.
The bank has been ramping up payouts for shareholders over the past two years as profits have improved and after returning to fully private ownership in 2017 following a state bailout during the financial crisis.
The bank unveiled a better than expected £4 billion dividend and share buyback bonanza after full-year results in February, despite weaker profit growth than expected.
Lloyds said it had invested £1.2 billion to date under a £3 billion three-year strategy to digitise its businesses and bulk up its wealth management operations via a joint venture with UK asset manager Schroders.