Lloyds Banking Group PLC (LSE:LLOY) potential financial risk due to motor finance loans is manageable, according to Deutsche Bank, which reaffirmed its 'buy' rating on the stock, with a slightly reduced price target of 80 pence (down from 83p).
Since 2007, Lloyds has collected an estimated £5.7 billion in interest on £56 billion in motor finance loans.
A recent court ruling introduced the possibility of "full rescission", meaning loans could theoretically be reversed, but Lloyds’ strong capital base is likely to withstand even this unlikely event, Deutsche said.
Lloyds is expected to continue a steady dividend, though stock buybacks may be more limited in the short term, the German bank said in a brief note.
Factoring in returns of all broker fees, total capital return is expected to yield 31% by 2026, with even the harshest scenario allowing for 20%.
Lloyds shares were up 1.8% at 54.04p in afternoon trading.