Lloyds Banking Group PLC (LSE:LLOY) has enhanced its guidance for the year following what it described as a solid first quarter – a period in which underlying profits grew by 26% to £2bn.
Going forward, it said it expects its net interest margin to be above 2.7% (up at least 0.1% on the previous forecast), while its return on equity is now set to be greater than 11% (previously targeted to be 10%).
In the first three months, revenue growth outpaced cost increases with the top line buoyed by a continued recovery in customer activity along with higher net interest and other income.
While the tenor of the statement was reasonably upbeat, chief executive Charlie Nunn struck a cautious note against a backdrop of rising prices and the conflict in Ukraine.
“Whilst we are seeing continued recovery from the coronavirus pandemic, the outlook for the UK economy remains uncertain, particularly with regards to the persistency and impact of higher inflation,” he told investors.
In the first quarter, Lloyds saw its net income grow by 12% to £4.1bn, while the net interest margin (the benchmark for banking profitability) was 2.68%.
Operating costs, meanwhile, grew at just 3% to £2.1bn for the three months ended 31 March. Looking ahead, those costs are expected to be £8.8bn for 2022.
The black horse bank said its asset quality remained strong in the face of some pretty tough economic headwinds as it booked an asset impairment charge of £200mln in the quarter.
To put that into context, its loan book stands at £451.8bn.
"In the first three months of 2022, we delivered solid financial performance, with strong income growth and capital build,” CEO Nunn said.
“These results demonstrate the consistent strength of our business model.”