Increased competition in the deposits and mortgages market, coupled with elevated costs, resulted in a decline of over a quarter in profits for Lloyds Banking Group during the first three months of the year.
Pre-tax profits at the UK's largest domestic lender, Lloyds Banking Group, fell by 28 percent to £1.63 billion compared to the previous year. This decline serves as a clear indication that the banking industry's favourable momentum from higher interest rates is diminishing.
The FTSE 100-listed group’s net interest margin, which is the difference between the interest it pays on deposits and charges on loans and is a key measure of a bank’s profitability, fell to 2.95 per cent from 3.22 per cent a year ago. William Chalmers, the Lloyds finance chief, said this margin decline reflected “keen pricing in the mortgage market and savings moving into higher rate accounts”.
In the past year, commercial banks capitalised on the Bank of England's prompt interest rate hikes targeted at addressing inflation. This strategy allowed them to expand their margins by increasing interest rates for borrowers at a faster pace than for depositors.
