The FTSE 100-listed bank, which has the largest UK presence of its high street peers, said domestic economic uncertainty had by no means evaporated in 2020 due to trade negotiations but it felt there was “a clearer sense of direction and some signs of an improving outlook”.
However, with the Bank of England’s outlook for interest rates not likely to provide a helping hand to the sector any time soon, Lloyds is reliant on pulling its own levers to improve.
In 2019, total net income shrank 4% to £17.1bn as the group’s net interest margin (NIM) — the key difference between a bank’s borrowing and lending rates — compressed to 2.88% from 2.93% the year before.
Underlying profit came out at £7.5bn, down 7% despite a sharp rise in loan impairments offsetting cost-cutting, including a 28% cut to chief executive António Horta-Osório's pay package to £4.7mln.
The big pay cut reflected a 26% fall in statutory profit before tax to £4.4bn after £2.4bn of provisions were taken for PPI, worse than analysts expected and which also caused the bank to suspend share buybacks last year too.
A final dividend of 2.25p per share was declared, meaning the total ordinary dividend for the year was up 5% to 3.37p.
Guidance for 2020 is for NIM to shrink further to 2.75-2.80% and for operating costs to be trimmed by at least another £100mln.
Lloyds shares, which had dropped over 12% since the start of the year, climbed 3% to 57.69p on Thursday morning.
The results were “somewhat disappointing” on a strict reading, said Richard Hunter, head of markets at Interactive Investor, even in comparison to the mixed performances from its UK banking rivals.
Yet for all of its headwinds, he said highlighted “a number of areas in which Lloyds is clearly winning”, including the 16.4mln active users of its digital bank and a cost/income ratio that sits at a sector-beating level of 48.5%.
“The hope must be that the end of the PPI saga will unleash both capital and improved fortunes for the bank, which rather like the results today, have had mixed reviews.”
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