Lloyds Bank debt fears as talk of house price crash grows

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RESH fears about the UK economy emerged today after Lloyds Bank set aside more than half a billion pounds to tackle bad loans and warned on a “worsening” outlook.

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As it dominates the mortgage and savings market, Lloyds is considered a close proxy for the broader UK economy – 98% of its business is in the UK.

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Today it said profits fell 26% over the past three months to £1.5 billion, and it set aside £670 million as “loss” charges against potential loan defaults.

It is a worrying call for the UK economy and bad news for new PM Rishi Sunak, with signs expected that winter will not be as hard as many fear.

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Yesterday, Barclays set aside £380 million for expected bad loans. Tomorrow NatWest will unveil more of the same kind as banks grumble that customers can’t cope with the rising costs of everything, especially energy bills and mortgages.

Banks must be booming. Lloyds’ net interest margin — the difference between what it pays to savers and what it charges borrowers — is a healthy 2.8%. It does far more than rivals in itself, which should give it a good cushion against bad news.

Instead it warned of a “deterioration in the macroeconomic outlook”, a clear danger that it may not be able to keep up with the credit sought by customers.

Sophie Lund-Yates at Hargreaves Lansdowne said: “Lloyd’s has wiped out its profits as it sets aside around £700m in preparation for a weakening economy. This non-cash fee is a buffer if a significant number of customers are using their defaults on loans. The best-case scenario is that the group has exaggerated its projections and some of it will be hoarded, which will ultimately boost profits. To a large extent, Lloyd’s can’t control the outside forces controlling the behavior of its clients, but its particular exposure to traditional lending, especially mortgages, can lead to conditions turning sour. But puts it in the firing line.

Lloyd’s figures at least suggest that talk of an unexpected tax on “extra” bank profits can be bypassed.

Already troubled shares fell 1.5% to 42p today. He has underperformed the stock market over the years.

Jefferies analysts called today’s “glass half-empty focus” and “front-loading of provisions” as reminders of the worst of the COVID era in 2020.

Graham Cox of SelfEmployedMortgageHub.com said:: “High impairment charges and low profits Lloyds is seeing are likely to be replicated in the banking sector. After the pandemic life-support shutdowns, many businesses are now struggling with very high input costs and low demand for more assets. With the rise in prices of Rishi Sunak’s stamp duty holiday and ultra-cheap credit, chickens are now coming home to settle in the mortgage market. It is quite conceivable that house prices could drop 20-30% in the next few years , which means that the loss charges could start getting huge.”

Credit: www.standard.co.uk /

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