More than a fifth of Lloyds Banking Group’s Irish residential mortgage book is impaired or unlikely to be repaid in full, it said today, but its impairment charges fell.
In a statement this morning, the bank said 67 per cent of all its loans in Ireland were classified as impaired at the end of the first quarter. But the lender's Irish impairment charge fell to £526 million (€643 million) from £1.144 billion a year earlier, and £711 million or the last quarter of 2011, it said.
"Impairment coverage has increased in Ireland, primarily reflecting further falls in the commercial real estate market, and further vulnerability exists," it said.
Pretax profit for the group more than doubled in the first quarter to £628 million, beating the £422 million median estimate of analysts.
The group said it would shrink assets further and faster than forecast, as Britain's biggest mortgage lender reduces its reliance on short-term funding. Lloyds raised its asset-reduction plan for the year by 5 billion to at least £30 billion and expects to meet its 2014 target a year early, London-based Lloyds said in a statement today.
Chief executive Antonio Horta-Osorio is seeking to strengthen Lloyds's balance sheet by selling assets, cutting costs and boosting its capital strength. Lloyds, which cut more than 30,000 jobs since its £20 billion taxpayer rescue in 2008, reduced its reliance on short-term funding by 41 per cent in the first quarter.
"Lloyds is very much focused on getting its balance sheet in order and this shows they are making good progress," said Gary Greenwood, an analyst at Shore Capital in Liverpool. "Pretty much all the balance sheet metrics are moving in the right direction."
The lender hit its target of reducing its loan to deposit ratio to 130 per cent two years early and is now seeking a 120 per cent ratio within 12 months, Lloyds said. That means the company would lend 120 pence for ever pound of deposits.
The bank had a loan to deposit ratio of 148 per cent in the first quarter of last year. Lloyds increased customer deposits 6 per cent to £412 billion in the period.
"The strong progress we have made in the first quarter supports our confidence in the delivery of our 2012 financial guidance, despite economic and regulatory headwinds and competitive markets," Horta-Osorio, 48, said in the statement. "Our income driven medium-term financial targets are achievable over time."
The bank in February said it won't meet the target it set in June of boosting return on equity to between 12.5 per cent and 14.5 per cent by the end of 2014. The bank had a 6.2 per cent loss on equity for 2011.
Mr Horta-Osorio said he expects the bank's net interest margin, the difference between what it earns on loans and its cost of funding, will be below 2 per cent in 2012, maintaining his earlier guidance. The margin narrowed to 1.95 percentage points in the first quarter, from 2.16 per cent points a year ago.
Lloyds cut its reliance on wholesale funding by 24 per cent to £231.3 billion in the quarter compared with the year earlier period. Funding with a maturity of less than one year fell by 41 per cent to £91.4 billion. The bank boosted its core Tier 1 ratio, a measure of financial strength, to 11 per cent in the quarter, from 10 per cent a year earlier.
The bank reduced its use of the Credit Guarantee Scheme, the British government's banking-assistance program, by £10.6 billion and the lender expects to repay the remaining £12.9 billion of support by the end of the year. Lloyds, which has weaned itself off emergency funding support from the Bank of England, took £11.4 billion pounds of three-year loans from the European Central Bank at a February 29th auction.
The bank set aside an additional £375 million s to compensate customers who were mis-sold payment protection insurance after a £3.2 billion charge last year. PPI complaints increased in the first quarter, driven by claims- management companies, the lender said.
Agencies
