Whoever said low risk equates to low profitability obviously didn’t have Lloyds Banking Group (LON:LLOY) in mind as the banks recovery story continued this morning as it reported pre-tax profits of £4.2bn, its best numbers in ten years.
In a sign that the bank is slowly consigning its legacy issues to the dustbin of history the bank’s provision for PPI was down to £1bn for 2016, and though there are some concerns that the recent scandal around HBOS may mean further provisions get set aside, there is optimism that shareholders can now focus on the future as opposed to dwelling on the past.
Concerns about the UK economy given the Brexit vote are likely to loom large in the next year or so which means that the slightly higher provision for bad loans might be a signpost to a wider concern, either that or prudent contingency planning.
Despite the recent cut in interest rates by the Bank of England the bank was still able to improve its net interest margin to 2.71% up from 2.62% a year ago, proving that the effects of the recent August rate cut were quickly absorbed and discounted by the market. The bank also declared a special dividend of 0.5p as well as a final dividend of 1.7p.
All that is needed now is for the UK government to offload the remainder of its 5% stake and the turnaround story would be complete, which makes it all the more surprising that the shares still remain below their pre-Brexit peaks of 72p.
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