By Iain Withers and Sinead Cruise
LONDON (Reuters) - Lloyds Banking Group (L:LLOY) posted forecast-beating third quarter profit on Thursday, cashing in on a coronavirus-driven boom in demand for mortgages as it lowered its provisions for expected bad loans due to the pandemic.
Britain's biggest domestic lender reported pre-tax profits of 1 billion pounds for the July-September period, well ahead of the 588 million pounds average of analysts' forecasts.
It booked new mortgage lending of 3.5 billion pounds after receiving the biggest surge in quarterly applications since 2008 - equal to 22% of the UK market share for approvals - as a cut in property transaction taxes and pent-up demand boosted activity.
In September, the number of house purchases in Britain rose 21%, taking the total number of sales close to their pre-pandemic level.
Lloyds set aside a further 301 million pounds to cover expected customer loan defaults, less than half the 721 million pounds analysts had expected.
Like its rivals, Lloyds' profits have been squeezed this year by provisions for expected bad debts due to the coronavirus crisis and rock-bottom interest rates.
Net income for the first nine months of 2020 tumbled 17% to 10.8 billion pounds, with 3.4 billion pounds booked in the third quarter.
But echoing HSBC (L:HSBA) and Barclays (L:BARC) results in recent days, Lloyds' latest quarterly provision for loan defaults was back in line with pre-crisis levels - though it did flag unpredictable times ahead.
"The outlook remains highly uncertain given the second wave of coronavirus, government response including social distancing measures and end of furlough scheme, together with ongoing Brexit negotiations," Lloyds said.
The bank said full-year loan loss provisions are expected to be at the lower end of the 4.5 billion pound to 5.5 billion pound range previously given. It has set aside 4.1 billion so far this year.
Its net interest margin - the difference between the money it makes on lending and pays out on deposits - rose to 2.42%, up from 2.4% last quarter.
Lloyds has granted around 1.2 million retail payment holidays on 69 billion pounds of lending to help ease financial pressure on customers hard hit by the pandemic.
Around 73,000 borrowers are still benefitting from a first payment freeze, while around 142,000 customers have requested extended relief on 9.8 billion pounds of loans.
Retail current accounts continued to increase ahead of the market in the third quarter, with group deposits up by 35 billion pounds over the first nine months of 2020, which Lloyds said would help it to lend strongly into the recovery.
Its core capital ratio, a key measure of financial strength, increased to 15.2%, compared to 14.6% at the half-year.