Banking group Lloyds TSB yesterday turned in an eight per cent increase in first half profit, helped by strong sales of insurance products and tight cost controls.
Lloyds, the UK's fifth-biggest bank, said pretax profit for the six months to June 30 came in at £1.752 billion, up from £1.626 billion in the same period last year, and marginally ahead of the consensus analyst forecast of £1.72 billion.
The improvement was driven by Lloyds' insurance and investments arm and its wholesale and international banking division, where profits rose ten per cent and 11 per cent respectively. That helped offset sluggish growth at the UK retail bank, where profits were up just two per cent.
Lloyds also benefited from cost discipline, with overall expenses rising just one per cent, lagging a six per cent increase in total income.
The bank said sales at Scottish Widows rose by 35 per cent during the first half, driven by growing demand for savings and investment products amid government warnings of a looming pensions crisis.
Lloyds chief executive Eric Daniels said the group plans to repatriate £400 million in capital from Scottish Widows this year. Lloyds also announced an increase in bad debts, with the total impairment charge up 20 per cent on the year at £800 million, in line with forecasts. Bad consumer loans accounted for the bulk of the increase, with the retail bad debt charge climbing 16 per cent to £632 million.
Finance chief Helen Weir said the overall charge will "stabilise" over the year, with retail bad debts set to steady as tighter lending criteria start to take effect.
"We would not expect to see any further increase in the (retail) impairment charge as we move into the second half," she added.
Most UK lenders have been hit by bad debt problems as rising interest rates and energy costs pile further financial pressure on heavily-indebted consumers.
The interim dividend is unchanged from last year at 10.7 pence per share. The dividend yield of 6.5 per cent is one of the highest in the UK, but Lloyds has not raised it for four years, prompting talk it may raise the dividend next year.
"The very weak retail profit performance reflects multiple headwinds - margin pressure in personal loans, falling PPI (payment protection insurance) income, reliance on punishment fees and spiralling bad debts," analysts at Dresdner Kleinwort said, downgrading their stance to "reduce" from "hold".
David Dodds, investment analyst at SVM Asset Management and a holder of Lloyds shares, also said: "All in all the results are reassuring.
"These results reaffirm Lloyds TSB as a turnaround story - you'd still be happy with a fat dividend and the possibility of it being taken out or a dividend increase next year."