Lloyds profit wiped out by coronavirus bad loan provision

London

LLOYDS Banking Group's profit was wiped out by a fresh £2.4 billion (S$4.3 billion) charge for bad loans in the second quarter as the lender braces for more pain from the coronavirus pandemic.

Britain's biggest mortgage lender said on Thursday that it now expects to set aside £4.5-5.5 billion this year to cover the economic fallout from months of lockdown and the end of government support programmes.

"The outlook has clearly become more challenging since our first-quarter results, with the economic impact of lockdown much larger than expected at that time," said chief executive officer Antonio Horta-Osorio.

Shares in the bank fell as much as 9.3 per cent in London.

Lloyds is the latest UK bank preparing for a deeper recession. The lender's severe scenario now includes a spike in unemployment to 12.5 per cent by the second quarter next year and a contraction in the economy of 17.2 per cent this year.

Chief financial officer William Chalmers told reporters that it is too early to say how many loans provided under government-backed programmes will turn sour. Lloyds wrote off just £10.5 million of loans to small- and medium-sized companies in the first half, below average for the past three years.

About 72 per cent of borrowers who took breaks on their mortgages in the first quarter are making repayments, while there was a "large uptake" for payment holidays on credit cards in the past three months, the bank said. The government has extended borrower support until October.

Lloyds' provision was £1 billion above analyst forecasts, and took the bank to a statutory pretax loss of £676 million for the second quarter. Its gloomy outlook comes a day comes a day after rival Barclays announced a higher than predicted charge to cover bad loans, sending its shares down 6 per cent. Analysts expect Natwest Group to follow suit with an impairment of £943 million in its results on Friday.

"The long-term challenges of low interest rates and anaemic economic growth are probably here to stay for some time," said Nicholas Hyett, equity analyst at Hargreaves Lansdown.

Lloyds also updated its guidance for net interest margin, a measure of profitability, which is expected to remain at a lowly 2.4 per cent for the rest of the year. It is a "very disappointing outlook", said Edward Firth, analyst at Keefe Bruyette & Woods.

Mr Horta-Osorio, who is set to leave the bank by next June, said the group's three-year plan is likely to emerge later in 2021, after his successor is appointed and Robin Budenberg, the bank's new chairman, joins the board in October.

"Coronavirus has changed many things," he added. "We are reviewing our options." BLOOMBERG