Lloyds Banking Group PLC (LSE:LLOY) reported strong growth in first-quarter profit as higher income and improved margins met slightly lower costs.
The UK lender posted statutory profit before tax of £2 billion for the three months to 31 March, up 2% from the final quarter of last year and 33% from the first quarter. It was a solid beat of the consensus forecast of £1.8 billion.
Return on tangible equity was 17.0%, up from 15.7% in the preceding quarter and 12.6% a year ago.
Net interest income rose 8% to £3.6 billion, while net interest margin, the difference between what a bank earns on loans and pays on deposits, increased to 3.17%, helped by hedge income and lending growth, from 3.10% in Q4 and 3.03% in Q1 last year.
Operating costs fell slightly to £2.5 billion, reflecting cost savings and lower severance charges. This was partly offset by inflation and growth-related spending.
Impairment charges, which reflect expected loan losses, fell less than expected to £295 million, as a higher £101 million hit from updated economic scenarios – driven by Middle East tensions – was partly offset by a £50 million release linked to earlier risk provisions.
Loans and advances to customers increased thanks to growth in both retail and commercial banking, while customer deposits edged down slightly.
The bank generated 41 basis points of capital in the quarter, with a CET1 capital ratio of 13.4%.
Charlie Nunn, group chief executive, said the group had delivered "sustained strength in financial performance" and remained focused on supporting customers.
Lloyds reiterated its guidance for the full year; it expects net interest income of more than £14.9 billion, a cost-to-income ratio below 50% and a return on tangible equity above 16%.