Lloyds shakes off taxpayer lifeline as earnings multiply

● Chief executive plays down fears over rising debt levels among consumers

Lloyds Banking Group is just weeks away from returning to full private ownership after doubling its profit in the first three months of the year.

The lender, which is now less than 2 per cent owned by the UK government, yesterday posted a better-than-expected set of first-quarter figures, with pre-tax profits surging to £1.3 billion, up from £654 million a year earlier.

The improvement came despite the Bank of Scotland owner being forced to set aside £350m to cover mis-sold payment protection insurance (PPI) claims and £100m to cover compensation for victims of fraud by former HBOS staff.

On an underlying basis, the group saw a more muted 1 per cent rise in profits to £2.08bn, but this defied expectations for a decline as it said the economy was still holding up well.

Lloyds – a bellwether of the economy, given its position as the biggest mortgage lender – said growth remained strong and is expected to continue at a similar rate to 2016, at around 2 per cent.

But experts flagged concerns over the group’s exposure to a downturn, with fears mounting that surging inflation caused by the Brexit-hit pound will bring an end to consumer spending-driven growth.

The first-quarter earnings mark another step forward in the bank’s recovery story as it edges closer to being fully returned to private hands in the coming months, with the Treasury stake being cut to below 2 per cent earlier this month.

The government announced last week that it had already recouped all of the £20.3bn of taxpayer cash used to bail out Lloyds at the height of the financial crisis.

Chief executive Antonio Horta-osorio said it was a “moment of huge pride for all of us at Lloyds”.

Michael Hewson, chief market analyst at CMC Markets UK, said: “The remaining 2 per cent stake is expected to be disposed of by the end of May and if the rise in the share price continues as it has been then the UK taxpayer will also get to see some form of return on the last nine years as well.”

It comes in stark contrast to Royal Bank of Scotland, which was due to update on Q1 trading today and remains 72 per cent owned by the government.

Horta-osorio added that Lloyds’ results showed the bank’s “ability to respond to a challenging operating environment”.

He brushed aside fears of rising consumer debt, insisting underlying household borrowing was still less than it was before the financial crisis, with most of the recent growth coming from student loans and car finance.

The group also posted a surprisingly robust net interest margin, in spite of record low interest rates, which has been hammering returns in the retail banking sector in recent years.

But the results show it is still yet to shake off past scandals, with the previously announced extra PPI charge taking its total bill for the saga to £17.3bn.

Shares added 1.56p to 68.97p.