Lloyds Banking Group has today reported a 57% jump in profit for 2023, as Britain's faltering economy and a charge for potential costs from a regulatory review into motor finance failed to put a major dent in its performance.
Lloyds reported pre-tax profit of £7.5 billion for the 12-month period, up from £4.8 billion the prior year and slightly above the £7.4 billion average of analyst forecasts compiled by the bank.
The group - which also spans the Halifax, Bank of Scotland and Scottish Widows brands - announced a final dividend of 1.84 pence and a share buyback of £2 billion.
As Britain's biggest domestic lender, Lloyds' fortunes are inextricably linked with those of the wider economy - which official data showed this month entered a recession in the second half of 2023.
But like its rivals, Lloyds has enjoyed a huge boost to lending revenues from higher Bank of England interest rates - which underpin borrowing costs - while containing losses from potential bad loans as more borrowers feel the pinch.
Lloyds set aside £308m to cover potential unpaid loans, well down on £1.5 billion the prior year.
The bank also set out muted performance guidance for the year ahead, amid tougher competition for mortgage and deposit pricing.
The bank reported a net interest margin - a key measure of underlying bank profitability - of 2.98% in the final three months of the year, down on 3.08% in the third quarter.
Lloyds said its NIM was forecast to fall to 2.9% this year. That in turn drove guidance for returns for 2024 to just 13%, down from 15.8% in 2023 before recovering to 15% by 2026, the bank said.
One potential major risk ahead for Lloyds lies in an ongoing regulatory review into suspected historic overcharging by car finance lenders - a market in which the bank is a big player through its subsidiary Black Horse.
Lloyds set aside £450m to cover possible redress. Some analysts estimate the bank's potential costs could rise as high as £2 billion.
Analysts at RBC have estimated the sector's total compensation bill could reach £16 billion, which would make it the costliest banking scandal since mis-selling of payment protection insurance (PPI).
Lloyds also announced it had appointed former Banco Santander executive Nathan Bostock to its board, after deputy chairman Alan Dickinson said he would step down on completing nine years of service.
Bostock was chief executive officer of the Spanish lender's UK arm from 2014 until 2022, and before that served briefly as finance director for RBS.
Lloyds facing money laundering controls investigation
Britain's Financial Conduct Authority (FCA) has opened an investigation into Lloyds Banking Group's anti-money laundering controls, the lender disclosed in its annual report today.
Lloyds said the investigation related to its compliance with money laundering rules in Britain and the FCA's rules and principles of business, with a focus on its controls framework.
The bank said it has been fully co-operating with the probe and is not able to estimate the potential financial impact, if any.
The FCA declined to comment.
Britain's authorities have in recent years vowed to increase their vigilance of money-laundering controls at the country's top banks, amid criticism that London is one of the world's biggest hubs for the movement of illicit cash.
Lloyds' rival Barclays also disclosed in its annual report this week that it had been investigated by the FCA over its compliance with UK money laundering rules, but had been informed by the regulator that it was closing its investigation.
NatWest was fined £265m in December 2021 for failing to prevent the laundering of nearly £400m, in the first criminal money laundering case by regulators against a British bank.
The Lloyds disclosure came on the same day it made a £450m provision to cover potential costs from an ongoing review into motor finance, which it reported alongside its 2023 financial results.
The bank said the provision did not reflect an admission of liability or wrongdoing.
The FCA is investigating claims of historic overcharging by some lenders, which some analysts say could spawn a fresh costly mis-selling scandal for the industry.
