First quarter net income rose 9%, to £4.8bn. Within that, both interest income and other income were higher. Banking net interest margin was up from 3.03% to 3.17%.
Underlying profit rose 31% to £2.0bn (£1.9bn expected). Growth was driven by higher net income and good cost control.
The group’s CET1 ratio, a key measure of financial strength, stands at 13.4% (target minimum = c.13.0%). Lloyds has repurchased £0.7bn worth of shares under the £1.75bn total buyback announced at the end of last year.
2026 underlying net interest income is now expected to be greater than £14.9bn (previously around £14.9bn).
The shares were broadly flat in early trading.
Our view
What a difference a few months makes. Back in January, management was talking about rate cuts, GDP growth and a healthy economic backdrop. The Middle East conflict has shifted things. Lloyds now expects no rate cuts, higher inflation, lower GDP growth and an overall softer picture. The good news is that these challenges are being managed well, full-year guidance even got a small nudge higher, and the outlook still looks attractive.
The focus on traditional lending means net interest margin (NIM - a measure of profitability in borrowing/lending) is key. NIM has continued to improve, and management expects it to rise in each quarter this year. That is a useful tailwind, with higher-for-longer rates expected to offset some of the pressure from slower activity and a weaker economic backdrop.
For now, the structural hedge is doing the heavy lifting, with Lloyds expecting hedge income to rise by more than £1.5bn in 2026 and increase again by another £1bn in 2027 – this is essentially a mechanical benefit and a core driver of interest income growth.
Loan growth continues to look encouraging, with mortgages moving higher, but there was also growth in credit cards, unsecured lending, motor finance, and European retail, suggesting momentum is broader than just one area. There are still headwinds to watch. The mortgage market remains highly competitive, so profitability on new lending remains under pressure.
Looking at lending quality, borrowers remain resilient, with arrears described as low and stable. Impairments were higher than the previous quarter, reflecting a more cautious economic outlook, but credit quality remains under control, and management expects high lending quality to continue through the year. This is an area of strength for Lloyds vs peers, becoming more important when conditions look softer.
Lloyds has also been building out other income streams, including insurance, investment management and transport-related income. Progress has been good, but it’s still the smaller side of the business. Half-year results in July will also include a strategy update, which is important for understanding how management plans to build on recent momentum.
There’s still an overhang from the investigation into the historic motor finance issue. Lloyds is more exposed than peers, but the latest update was reassuring, with no change to the c.£2bn of provisions already taken. The final cost is uncertain, though, so this remains a risk to monitor.
Lloyds remains one of our preferred names in the sector, with strong capital levels that should support healthy returns to shareholders over the next few years. That said, the valuation isn’t as attractive as it once was, and no returns are guaranteed.
Environmental, social, and governance (ESG) risk
The financials sector is medium-risk in terms of ESG. Product governance is the largest risk for most companies, especially those in the US and Europe with enhanced regulatory scrutiny. Data privacy and security is also an increasingly important risk for banks and diversified financial firms. Business ethics, ESG integration and labour relations are also worth monitoring.
According to Sustainalytics, Lloyds’ management of material ESG issues is strong.
The FCA’s investigation into historical auto-lending practices between 2007 and 2021 is a risk for Lloyds. Provisions have been taken and following updates from both the Supreme Court and FCA, we now have more clarity on the impact. There’s room for improvement in product governance and responsible marketing, though it demonstrates strong progress in integrating ESG factors into asset management and corporate financing.
Lloyds key facts
All ratios are sourced from LSEG Datastream, based on previous day’s closing values. Please remember yields are variable and not a reliable indicator of future income. Keep in mind key figures shouldn’t be looked at on their own – it’s important to understand the big picture.
This article is original Hargreaves Lansdown content, published by Hargreaves Lansdown. It was correct as at the date of publication, and our views may have changed since then. Unless otherwise stated estimates, including prospective yields, are a consensus of analyst forecasts provided by LSEG. These estimates are not a reliable indicator of future performance. Yields are variable and not guaranteed. Investments rise and fall in value so investors could make a loss.
This article is not advice or a recommendation to buy, sell or hold any investment. No view is given on the present or future value or price of any investment, and investors should form their own view on any proposed investment.