ii view: Lloyds Bank embarks on next phase of growth

First-half results to 30 June

• Net income up 13% to £10.63 billion
• Pre-tax profit up 23% to £4.3 billion
• Interim dividend of 1.58p per share, up from 1.22p a year ago
• Capital cushion, or CET1 ratio of 13.1%, down from 13.4% in late March
• Return on Tangible Equity (ROTE) up 3% to 17.1%
• New share buyback scheme of £1 billion

Guidance:

• Now targeting a further £2 billion of cost savings by 2030
• Now targeting Return on Tangible Equity (ROTE) of more than 20% by 2030.

Chief executive Charlie Nunn said:

“In the first half of 2026, we delivered sustained strength in financial performance, with continued income growth, improving operating leverage, strong credit performance, growing capital generation and increasing shareholder returns.

“We are successfully completing our 2022 to 2026 strategy. This ensures the Group is well placed to launch our new strategy, Accelerate 2030, from a position of strength. Our strategy will allow us to unlock the next phase of growth and sustainable value creation for our shareholders."

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ii round-up:

Transferring its head office to London from Birmingham in 1912, Lloyds Banking Group (LSE:LLOY) today operates across three divisions.

The Retail division generated most income during this latest half year 45% via 28 million customers and brands including Lloyds, Bank of Scotland and Birmingham Midshires. Commercial Banking, with around 1 million corporate relationships, accounted for a further 29% of income. Finally, Insurance, Pensions and Investments, and home to brands such as Scottish Widows and Schroders Personal Wealth, accounted for most of 26% balance.

For a round-up of these latest results announced on 30 July, please click here.

ii view:

Lloyds is one of the UK's leading lenders. Around 22 million mobile app users and seven billion annual digital log-ons make it the UK’s biggest digital bank. UK mortgages provide its biggest area of lending at 67%. That’s followed by corporate related lending at almost 20%, Credit cards, UK motor finance and European retail each at around 4%, and other areas such as overdrafts and private banking the balance of around 1%. Competitors include Barclays (LSE:BARC), HSBC Holdings (LSE:HSBA), NatWest Group (LSE:NWG) and Paragon Banking Group (LSE:PAG).

Successes under strategic initiatives up to 2026 have included 50% growth in digital retail app users, a 15 times reduction in opening times for corporate accounts, and over £2 billion of cost savings.  

For investors, competition remains intense with Revolut previously gaining a banking licence, and mutual bank Nationwide able to capture new customers via bonuses and its ownership status not requiring dividend payments. Bad debt charges rose to £617 million from £443 million a year ago. A forecast price/earnings (PE) ratio above the three-year average may suggest the shares are not obviously cheap, while the bank’s diversity of geographical region and product offering, such as investment banking, are not as wide as that seen at rival Barclays.

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On the upside, further corporate goals out to 2030, including the increasing use of AI, should assist the bank’s growth over the next few years. An ongoing target to diversify revenues has seen the group’s Insurance, Pensions and Investments division grow workplace assets under administration by more than 70% since 2021. The ongoing use of a so-called ‘structural hedge’ now continues to help in mitigating changes in interest rates, while a capital cushion or CET1 ratio in line with management’s goal offers balance sheet reassurance.

For now, and despite ongoing risks, further growth initiatives to 2030 and a forecast dividend yield of around 4% should continue to make this UK bank a share of interest.

Positives

• New 2030 growth initiatives
• Attractive dividend (not guaranteed)

Negatives

• Uncertain economic outlook
• Lacks the geographical diversity of some other banks

The average rating of stock market analysts:

Buy