LONDON (Reuters) - Lloyds Banking Group (LLOY.L) gave an upbeat assessment about the British economy in the face of Brexit after the country’s biggest mortgage lender reported a 23 percent jump in first-half profit despite an additional mis-selling charge.
Lloyds’ focus on the domestic economy leaves its earnings exposed to the risks of Britain’s departure from the European Union, but the bank’s management said it had seen few signs of Brexit-related strain on the economy even as concerns rise about whether the two sides can reach a deal in time.
“The UK economy remains resilient and, excluding the impact of adverse weather, continues to demonstrate robust growth,” said Antonio Horta-Osorio, Chief Executive of the bank.
The bank’s exposure to consumers’ finances via mortgages and unsecured lending such as credit cards make it a bellwether for the British economy.
Its pretax profit reached 3.1 billion pounds ($4.07 billion)for the period until end-June. It was expected to book 3.2 billion pounds, according to a bank-compiled average of forecasts provided to Reuters by an analyst.
The bank’s shares were up 2 percent at 0844 GMT.
An additional 460 million pound provision for the mis-sale of payment protection insurance (PPI) was an “unwelcome development” but Lloyds’ strong results gave it the benefit of the doubt, said Richard Hunter, head of markets at Interactive Investor.
One of Britain’s costliest banking scandals, PPI has cost Lloyds alone 18.8 billion pounds so far and the bank had hoped to draw a line under it.
“The issue has cast a long shadow over the sector and Lloyds in particular,” Hunter said, adding that it could add to concerns about an economic downturn after Brexit.
The bank said its full-year forecast for its net interest margin - an indicator of bank profitability - was now in line with the figure for the first half of the year, which was at 2.93 percent.
George Culmer, Lloyds chief financial officer, said this forecast factored in one interest rate increase this year. The Bank of England is expected to hike rates on Thursday.
While banks tend to benefit from rising interest rates, they can also put a strain on indebted consumers that owe them money.
Lloyds said it had made good progress on its three-year strategy, laid out in February and aimed at bolstering its retail lending business against increasing competition from both established rivals and upstart financial technology firms.
It reported a common equity tier one capital ratio - a measure of banks’ financial strength - of 15.1 percent pre-dividend. The bank would pay an interim dividend of 1.07 pence per share, it said.
Reporting by Emma Rumney and Lawrence White, editing by Sinead Cruise and Louise Heavens