Lloyds Banking Group profits beat expectations in the first half of the year, despite the lender shouldering a sharp rise in costs over the period.
The FTSE 100 bank posted a statutory pre-tax profit of £3.5billion for the six months to 30 June, up 5 per cent on the same time last year and surpassing analysts’ forecasts of £3.2billion.
Boss Charlie Nunn said Lloyds had demonstrated ‘strategic progress and sustained strength’ as its net interest margin – the difference between what a bank makes and pays out in interest – improved 10 basis points year-on-year to 3.04 per cent.
Underlying net interest income of £6.7billion was also driven by higher average interest-earning banking assets of £458billion.
The improvement came despite operating costs rising 4 per cent to almost £4.9billion over the period.
Lloyds faces a tax expense of £960million in the first half, up from £880million last year and representing an effective tax rate of 27.4 per cent.
Lloyds boss Charlie Nunn with Chancellor Rachel Reeves during a roundtable discussion with City representatives earlier this month
The lender also recognised impairment charges of £442million, well up from £100million last year, following a higher charge in commercial banking from ‘a small number’ of businesses going into default.
Lloyds hiked its interim dividend 15 per cent to 1.22p per share, equivalent to £731million.
It continues to expect to report net interest income of £13.5billion for the full year, with operating costs of £9.7billion.
Nunn said: ‘We have shown sustained strength in our financial performance in the first half of 2025, with income growth, cost discipline and robust asset quality, driving strong capital generation and increased shareholder distributions.’
Lloyds shares were up 0.8 per cent to 78.23p in early trading. They are up by around 40 per cent since the start of 2025.
A looming decision on potential compensation payments related to the motor finance commissions scandal from the Supreme Court hangs over Lloyds’ latest update.
Matt Britzman, senior equity analyst at Hargreaves Lansdown, said: ‘Lloyds has already taken £1.15billion in provisions, and in perhaps a sign of confidence around what’s to come, no additional provision was set aside today (some analysts had pencilled in another tranche).
‘Lloyds has around a 14 per cent share of the motor finance market, making it more exposed than most of its peers, so investors will be keeping a close eye on how this develops.
‘Underlying performance looks strong and, if coupled with a favourable outcome from the motor finance investigation, the valuation looks attractive.’
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