Lloyds Bank raises guidance and dividend, announces new £2 billion buyback

By Geoffrey Smith

Investing.com -- Lloyds Bank (LON:LLOY) raised its 2023 guidance and said it will buy back £2 billion of stock after delivering a 21% rise in underlying profit in the fourth quarter.

It also raised its final dividend to 160 pence a share, bringing total dividends for the year to 240 pence, a 20% increase from 2021. The buyback is in line with the last two years.

The payouts helped to offset signs of increased stress in its loan book, reflecting its exposure to the domestic U.K. economy. Despite falling to to £465 million (£1 = $1.2111) in the final quarter from £668M three months earlier, provisions against credit losses totaled over £1.5B for the whole of 2022 - a sharp contrast to 2021, when it had been able to release a net £1.38B in pandemic-era reserves.

The provisions effectively neutralized the beneficial effect of the Bank of England's interest rate hikes throughout the year, leaving statutory profit before tax roughly unchanged at £6.93B.

The rising interest rate environment allowed Lloyds to generate 26% more in net income from its core lending business in the quarter, as its net interest margin widened to 3.22% from 2.98% in the three months through September. The solid starting position for 2023 allowed it to raise its NIM forecast by 25 basis points to "at least 305 basis points". While that implies a weakening of lending margins as the year progresses, it still represents an improvement on an average of 2.94% in 2022.

For 2023, Lloyds forecast return on tangible equity – a broad measure of profitability – to be around 13%, and some 1.75% of capital generation, down from 2.45% in 2022. The amount of capital generated broadly determines how much money the bank has available for shareholder payouts.

Lloyds Bank shares fell 2.2% in early trading in London on Wednesday in response.