Lloyds measuring up nicely as recovery now established

Comment Martin Flanagan

People talk about the fly in the ointment for Lloyds Banking Group being its heavy exposure to the UK economy – significantly more than its main rivals – in the event of another homegrown recession.

The bank has about one in three UK current accounts, and not far off that in mortgages. Lloyds also ramped up that UK consumer exposure last year with the acquisition of the MBNA credit card giant.

However, the flipside, demostrated by its latest quarterly figures, is that when the UK economy is doing well, or even passably resilient as now, Lloyds’ simple and stable business model reaps benefits.

Investment banking, with its uneven earnings and other vagaries, barely gets a look-in.

All the metrics, both headline and more esoteric, currently look good. Pre-tax profits jumped 23 per cent in the first three months of 2018 on income up 4 per cent at £4.58 billion. The net interest margin – the difference between what it charges on loans and pays on deposits – is going in the right direction (for it, if not the consumer).

It is the same story on the cost/income ratio, also a key measure for banks, and that is likely only to improve as Lloyds plunges further into the digitalisation of banking under chief executive Antonio Horta-osorio.

Shares in Lloyds aren’t doing brilliantly, admittedly. Perhaps there is an overhang of negative investor sentiment from the decade the lender spent in part-taxpayer ownership following its star-crossed takeover of HBOS in the financial crash.

But Horta-osorio is partly addressing that by definitely keeping many shareholders onside for income growth, with a dividend yield of 4.6 per cent still highly attractive in this era of still basement interest rates.