Lloyds Banking Group PLC (LSE:LLOY) publishes its third-quarter update on Wednesday 23 October fresh from having increased mortgage rates as the UK's largest lender looks to protect its profit margins amid constant fluctuations about the Bank of England's path for interest rates in coming months.
The last results we saw from the high-street bank showed a fall in first-half profits but the full-year outlook maintained, with a cherry on top in the form of a 15% dividend hike.
Net income fell 9% as its banking net interest margin (NIM) fell to 2.93% in the second quarter, meaning it was 2.94% across the first half, down from 3.03% in the second half of last year as the market leaned towards the anticipated first cut from the Bank of England, which arrived at the start of August.
Operating costs rose 7%, partly offset by a £560 million lower impairment charge, leading to pre-tax profits falling almost 8%.
For the full year, Lloyds expected a net interest margin of greater than 2.90%, with a return on tangible equity of circa 13% and a CET1 ratio of circa 13.5%.
This was based on its macroeconomic forecasts at the time, but with inflation having dropped below 2%, it might need a small tweak, unless its moves in the mortgage market by its Halifax mortgage arm are protecting its margins.
In a recent note, analysts at UBS said they saw Lloyds shares as fairly valued, pointing to the stabilisation of deposit rates and growth in sight deposits as a positive development, as these lower-yielding deposits provide banks with a steady income stream.
However, the analysts warned that with interest rates likely to fall, banks will face pressure to pass these reductions on to customers, potentially limiting their profits in the near term.