Lloyds Banking Group warned that the cost of living crisis could result in higher defaults on its loans as it posted a 14% drop in quarterly profits.
The lender reported a first-quarter profit of £1.6bn, down from £1.9bn a year earlier. Revenue increased 12% to £4.1bn, on the back of rising interest rates and continued mortgage growth.
The lender, which is the UK’s largest mortgage provider, booked an impairment charge of £177m as it warned that the cost of living crisis could affect borrower disposable income.
“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,” said chief executive Charlie Nunn.
The bank said higher inflation, which hit a record high of 7% last month, is making it harder for borrowers to keep up with payments.
Nunn added: “We are proactively contacting customers where we feel they may need assistance and will continue to help with financial health checks and other means of support.
“We encourage customers, where affected, to get advice early and talk to us.”
Lloyds chief financial officer William Chalmers said that, while borrowers’ arrears remains low and below levels seen before the pandemic, the bank is braced for these to rise.
“We’re likely to enter into a tougher environment and expect impairments to tick up a little bit,” he said.
Lloyds share price was up during early trading as investors reacted to the figures.
