Lloyds sets aside £100m for tariff uncertainty as lender’s profits plunge

Lloyds Banking Group profits fell at the start of the year as the lender set aside more money for bad debts amid economic uncertainty heightened by the emerging trade war.

The lender reported pre-tax profits of £1.52billion for the three months to the end of March, down 7 per cent on the £1.63billion reported a year ago.

It set aside £309million for impairment charges, up from £57million a year ago, including £100million for potential borrower defaults as the tariff hikes unveiled by Donald Trump led to concerns over the global economic outlook.

The banking giant said: ‘Initial non-UK tariffs announced in the first few days of April and the immediate market response were larger than expected.’

HSBC and UBS this week pointed to degrading loan demand and further credit losses from the broader fallout of Trump’s global trade war, while large US banks warned of economic turbulence last month. 

The bank’s forecasts for the British economy are mixed.  

Lloyds is predicting a ‘slow expansion in gross domestic product and a modest rise in the unemployment rate’ in the UK ‘alongside small gains in residential and commercial property prices’. 

The lender added: ‘Inflationary pressures remain persistent, but gradual cuts in UK Bank Rate are expected to continue during 2025.’ 

The group stuck by its guidance for its annual results in the face of ‘recent market volatility and economic uncertainty.’

Its underlying net interest income for the period reached £3.3billion, up 3 per cent year-on-year and up 1 per cent versus the fourth quarter of 2024. 

The bank said it saw ‘strong growth in lending and deposits.’ 

Underlying loans and advances to customers rose by £7.1billion in the quarter to £466.2billion, led by UK mortgages growth of £4.8billion. 

Customer deposits increased in the quarter by £5billion to £487.7billion, with £2.7billion growth in retail and £2.3billion in commercial banking 

Charlie Nunn, the group’s chief executive, said: ‘In the first quarter of 2025, the group delivered sustained strength in financial performance.

‘We remain confident in the outlook for Lloyds Banking Group and in our 2025 and 2026 guidance.’ 

Lloyds Banking Group shares fell 1.99 per cent or 1.46p to 71.82p on Thursday, having risen around 40 per cent in the last year.  

John Moore, a senior investment manager at RBC Brewin Dolphin, said: ‘Lloyds’ results are from a similar playbook to its peers earlier in the week – all in all, it has delivered a resilient, but mixed, set of figures. 

‘Rising income and a stronger net interest margin have been offset by an increase to costs and more money being set aside for impairments, including £100million for tariff-related issues. 

‘Lloyds is the most exposed of the UK banks to Britain’s economy, which could present challenges if growth doesn’t pick up. 

‘But the big question mark hanging over the bank is the potential cost of mis-sold car finance products, with a ruling expected by the Supreme Court in July. 

‘There is a ‘business-as-usual’ feel to this morning’s update; but, as has been said for some time, Lloyds is moving closer to the point of needing to set out its long-term plans and strategic direction for the future.’ 

Richard Hunter, head of markets at Interactive Investor, said: ‘For all the progress, the impairment overhang, a potentially challenging UK economic backdrop and the higher valuation attached to the recent share price gain have all contributed to a lukewarm response to the numbers. 

‘There could also be an element of profit taking involved, with the shares having risen by 41 per cent over the last year, as compared to a gain of 4.6 per cent for the wider FTSE 100, and by 33 per cent in this calendar year alone. 

‘As such, and while Lloyds remains a longer-term play bolstered by the potential for generous shareholder returns, the market consensus of the shares as a hold is reflective of the fact that the shares are regarded as being up with events for now.’ 

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