Lloyds Banking Group has more than doubled profit in the third quarter, boosted by the absence of a provision for payment protection insurance, the UK’s costliest mis-selling scandal.

The bank posted a statutory profit before tax of £2bn in the three months to the end of September, up from £811m in the same period last year. The result beat analysts’ forecast of £1.6bn.

The profit was buoyed by the lack of a PPI bill, after Lloyds was forced to earmark £1bn in the same period of last year. The bank also set aside a bulky £1.1bn in the first half of 2017, as the number of claims increased after the financial regulator confirmed the compensation deadline as August 2019.

The end of PPI will serve as a major reprieve for the bank, which has been worst hit by the scandal, provisioning more than £18bn to date. Aside from PPI, the bank is still in the process of compensating former HBOS customers who allege their businesses were crippled by the bank before it was acquired by Lloyds in 2009.

Lloyds made no “other conduct provisions” in the third quarter. This meant statutory profit was less impacted by one-off costs. Stripping out one-off items, the bank reported an underlying profit of £2.1bn, up from £1.9bn in the same period a year ago.

The strong results spurred the bank to upgrade its forecast for capital generation, which it expects to be between 225-240 basis points for 2017. It said it expects the net interest margin – a key figure of profitability –to be around 2.85 per cent at year end.

António Horta-Osório, chief executive of Lloyds Banking Group, said: “In the first nine months of the year we have delivered strong financial performance with increased underlying and statutory profit, a significant improvement in returns and strong capital generation.”

Despite the record low interest rates and intense competition in the mortgage market, Lloyds posted a 8 per cent increase in total income to £4.6bn.

The bank’s net interest margin – the difference between the interest it receives from lending and the amount it pays out, relative to assets – improved to 2.9 per cent in the third quarter, up from 2.7 per cent in the same period a year ago.

Profit was also partly driven by slightly lower costs, with the cost-income ratio falling to 46 per cent, from 47.5 per cent a year ago. The bank also boosted its capital buffers – common equity tier one ratio – to 14.1 per cent post dividend.

Lloyds has accelerated efforts to remove jobs and close branches over the past few years, targeting £1.4bn of savings by the end of 2017. It is part of a broader push by Mr Horta-Osório to lower expenses and digitise the bank for the future.

The chief executive is aiming to unveil his third strategic review at the start of next year. He is expected to outline his focus on expanding into the retirement and financial planning market, and growing in lending to SMEs.

Image source: Bloomberg

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