Lloyds set to see annual profits rise despite motor finance hit

Lloyds Banking Group will be first out of the stalls with its annual results on Thursday and is expected to reveal higher profits despite another hefty hit for motor finance compensation.

In October, the high street lender reported a 36% slump in third quarter profits after booking an extra £800 million charge to compensate customers unfairly sold a car loan.

The provision took its total motor finance compensation bill so far to an estimated £1.95 billion.

But most analysts are expecting the group to bounce back in the final three months of the year, with forecasts for profits to more than double to £1.7 billion from £824 million a year earlier.

This is set to see it deliver a 7% rise in pre-tax profits for the year, with the City pencilling in £6.38 billion.

Richard Hunter, head of markets at Interactive Investor, said: “The third quarter turned out to be one to forget for Lloyds, with the additional motor finance redress provision playing havoc with many of its key metrics.

“Of course, the motor provision is not life-threatening and without that distraction the underlying progress remains strong.”

The motor finance mis-selling scandal has seen Lloyds hit particularly badly, with the biggest bill so far among UK lenders.

The Financial Conduct Authority (FCA) is hoping to compensate motorists who were unfairly sold a car loan between 2007 and 2024 because they were not properly informed about the commission paid to brokers, including car dealers.

Under the current proposals, about 14 million car finance deals could be eligible for compensation, with people estimated to get an average of £700 per agreement.

But the regulator’s plans have been met with significant pushback from lenders.

The FCA closed its consultation on the details of the scheme in mid-December and is expected to publish final rules in February or March.

Away from motor finance, Mr Hunter said there may be some clouds on the horizon for the group as the wider economy continues to flag.

“Often seen as a barometer for the UK economy, the group will face the additional challenges of a potentially deteriorating backdrop, while previously lower house price forecasts increased impairments in addition to the motor finance hit,” he said.

“For the most part, however, the UK consumer is alive and well with defaults stable and the previous small number of individual cases moving into default territory within commercial banking appearing to have stabilised.”

Michael Hewson at MCH Market Insights said with motor finance provisions “in the rear-view mirror”, Lloyds bosses “can now focus on taking the bank forward”.

This includes a heavy focus on embedding artificial intelligence (AI) across its operations, as well as tapping further into wealth, following the recent acquisition of Schroders Personal Wealth, which was previously run as a joint venture.

The results on Thursday come almost a month earlier than in previous years, with Lloyds also reporting before its peers and more in line with the US bank reporting season.

In July, the bank said the decision to bring results forward was “consistent with its ambition to move at pace into the year ahead”.