Investing.com -- Shares of Lloyds Banking Group (LON:LLOY) rose on Wednesday after the bank reported better-than-expected third-quarter results, driven by lower impairments, stronger other income, and net interest income.
At 4:04 am (0804 GMT), Lloyds Banking Group was trading 1.7% higher at £63.
Lloyds posted an 11% adjusted pre-tax profit beat against consensus expectations, due to a lower-than-forecast impairment charge and stronger-than-anticipated growth in other income streams.
Additionally, the results were also 4% ahead of consensus on an adjusted pre-provision profit basis.
Lloyds reaffirmed that its net interest margin is expected to remain above 290 basis points at the end of the fourth quarter.
The third quarter NIM came in slightly above expectations at 295bps, driven by structural hedge earnings, which offset pressures from deposit churn and narrowing mortgage margins.
The bank also reported a modest increase in average interest-earning assets, though slightly below consensus estimates.
Lloyds’ capital position remained strong, with a phased-in CET1 ratio of 14.3%, in line with expectations.
This ratio is now comfortably above the bank’s target of 13.5%, and analysts noted that Lloyds expects the impact of Basel 3.1, coming into force in 2026, to be slightly positive.
Tangible book value per share also rose 6% quarter-on-quarter to 52.5 pence, ahead of the consensus forecast of 50.8 pence.
In terms of income, NII grew by 2% on a quarterly basis, driven by the bank’s structural hedge, which added 10bps to the margin.
Other income exceeded expectations by 3%, growing 10% year-on-year, supported by solid performance in retail and equity investment businesses.
On the cost front, adjusted expenses were broadly in line with market estimates. However, remediation charges came in lower than expected, at £29 million versus the consensus of £64 million, helping to ease cost pressures.
Lloyds also avoided further charges related to the Financial Conduct Authority’s ongoing review of historical motor finance commission practices.
Impairment charges for the quarter were below expectations, with Lloyds reporting £172 million compared to the consensus of £271 million.
This resulted in a group cost of risk of 15bps, well below the forecasted 22bps. The bank did not post any macroeconomic-related provisions during the quarter.
On the liquidity front, total deposits increased by 0.2% from the previous quarter, driven by higher savings balances, though this was partially offset by declines in current accounts and commercial deposits.
Lloyds management has reiterated their full-year guidance, maintaining confidence in their targets for 2024 and 2026. This includes a return on tangible equity target of around 13%, a NIM of over 290bps, and capital generation of around 175bps annually.
The bank’s CET1 ratio is expected to drop to 13.5% by the end of this year, aligning with market expectations.
“In our view, LLOY now looks expensive relative to peers, and we believe the re-rating story will be much tougher from here. We feel that structural hedge tailwinds, growth in other income and good asset quality are trends now much better understood,” said analysts at RBC (TSX:RY) Capital Markets in a note.