ii view: investors shrug off Lloyds Bank motor finance worries

Home to brands including Halifax, Bank of Scotland and Birmingham Midshires and with banking app users now totalling 20.9 million. Buy, sell, or hold?

22nd August 2025 11:12

by Keith Bowman from interactive investor

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First-half results to 30 June

Income up 6% to £8.9 billion
Pre-tax profit up 5% to £3.5 billion
Cost:income ratio of 55.1%, improved from 57.1%
Interim dividend up 15% to 1.22p per share
Capital cushion, or CET1 ratio of 13.8%, up from 13.5%

Guidance:

Continues to target a 2026 cost:income ratio of below 50%
Reducing CET1 to 13% by 2026

Chief executive Charlie 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, with a 15% increase in the interim ordinary dividend.

“We continue to make great progress in our purpose-driven strategy, building differentiated customer outcomes and delivering growth across our business as we build towards our ambitious targets for 2026.

“Our strategic progress and sustained strength in our financial performance allows us to re-affirm our 2025 guidance and gives us confidence in our 2026 commitments. It also underpins our delivery of higher, more sustainable returns for our shareholders."

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ii round-up:

Tracing its history back to 1695, Lloyds Banking Group (LSE:LLOY) today operates across three divisions.

The Retail division generated most income in 2024 at 58% via brands including Lloyds, HBOS, Bank of Scotland and Birmingham Midshires.

Commercial Banking, serving small and medium businesses as well as corporate and institutional clients, generated 31% of 2024 income.

Insurance, Pensions and Investments, and home to brands such as Scottish Widows and Schroders Personal Wealth, accounted for 7% of income, with equity investments most of the 4% balance.

For a round-up of these latest results announced on 24 July, please click here.

ii view:

Lloyds Bank serves around 28 million customers across the UK via 16 different brand names. Employing around 65,000 people and headquartered in London, competitors include Barclays, HSBC Holdings (LSE:HSBA), Paragon Banking Group (LSE:PAG) and NatWest Group (LSE:NWG). Focus under boss Charlie Nunn includes growing revenue from diversifying sources and continuing to digitalise its portfolio of businesses while improving efficiency and customer relationships.

For investors, uncertainty regarding the final cost of settling motor finance mis-selling claims remains an overhang, although the early August court ruling appearing to suggest an allowance of a fee but questioning the correct level. Concerns regarding the economic outlook have seen underlying impairments rising to £442 million, up from £101 million a year ago. The bank lacks the diversity of geographical region and product offering such as investment banking enjoyed by rival Barclays, while a price-to-net asset value above the three-year average may suggest the shares are not obviously cheap.

To the upside, provisions regarding the mis-selling of motor finance already total £1.2 billion. Management's push to increase efficiency continues to underpin forecasts for a cost:income ratio below 50% come 2026. Both loans and deposits increased during the half-year, while the balance sheet remains robust, even at a potentially reduced and targeted capital cushion, or CET1 ratio of 13% by 2026.

In all, and while risks remain, a history of prudent provisioning, a drive to boost efficiency, and a forecast dividend yield of just over 4% all look to offer grounds for longer-term hope. That optimism is reflected in a share price currently sitting at a new 10-year high.

Positives

Focus on reducing costs
Attractive dividend (not guaranteed)

Negatives

Uncertain economic outlook
Lacks the geographical diversity of some other banks

The average rating of stock market analysts:

Buy

These articles are provided for information purposes only. Occasionally, an opinion about whether to buy or sell a specific investment may be provided by third parties. The content is not intended to be a personal recommendation to buy or sell any financial instrument or product, or to adopt any investment strategy as it is not provided based on an assessment of your investing knowledge and experience, your financial situation or your investment objectives. The value of your investments, and the income derived from them, may go down as well as up. You may not get back all the money that you invest. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.

Full performance can be found on the company or index summary page on the interactive investor website. Simply click on the company's or index name highlighted in the article.

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