Bank of Scotland owner Lloyds sees Q3 profits rocket with customers 'adjusting to times we're in'

The lender, which also owns Scottish Widows and Halifax, said its banking and mortgage customers are proving to be resilient in the face of higher living costs. Lloyds reported a pre-tax profit of £1.9 billion for the three months to September, beating analysts' expectations and more than tripling the revised £576 million made last year.

The banking giant took in £3.4bn in net interest income – the difference between what it paid out for deposits and generated from loans – which was up on the year before. It comes as higher interest rates, which currently stand at 5.25 per cent, have pushed up the cost of borrowing.

Lloyds maintained that there has been little sign of stress among its borrowers, with arrears relatively stable and defaults on loan repayments slowing, although remaining slightly above pre-pandemic levels. Its mortgage borrowers typically have a lower loan-to-value deal and a higher income, meaning they are more able to absorb higher interest rates, the bank has previously said.

Loan balances grew by £1.4bn in the latest quarter, although lending fell by £2.8bn over the first nine months of the year. Meanwhile, household spending increased in recent months despite consumers facing a cost-of-living squeeze, the bank revealed.

William Chalmers, Lloyds' chief financial officer, said: "You can see some pretty consistent and reasonable spend increases – it's interesting, in our base, that is strongly in both travel and entertainment, as examples. I think it's safe to say that, as a general matter, customers are adjusting to the times that we're in."

Some £3.2bn was taken out of current account deposits and £3.9bn put into savings, and more than two-thirds of the money flowing out of current accounts, which typically have low returns, is "captured" by Lloyds' savings accounts, Mr Chalmers said.

Matt Britzman, equity analyst at Hargreaves Lansdown, said: “Lloyds’ retail deposit base has put in a steady performance over the quarter as it managed to keep hold of savers looking for better rates. [It] did see a 3 per cent dip in current account values and has seen over £9bn in outflows year to date, but was able to make up for the loss this quarter with inflows into its savings products.”

Richard Hunter, head of markets at Abrdn-owned Interactive Investor, also commented: “Lloyds is making a good fist of performing within a difficult environment, with its underlying financial strength underpinning progress.” However, he added: “Despite its own valiant efforts, Lloyds has suffered from factors beyond its control. The banking turmoil earlier in the year and the highly uncertain outlook for UK economic prospects have weighed on the share price, which has fallen by 17 per cent over the last six months.

"Over the last year, the loss is more contained, with the shares having dipped by 5 per cent, although this compares unfavourably with a gain of 5.4 per cent for the wider FTSE100 over that period. Market consensus more recently has also cooled on what could be a turbulent time to come, and in the absence of any major positive surprises in this update now stands at a hold – albeit a strong one.”