Lloyds's Balancing Act

Lloyds's Balancing Act – at Moneyweek.co.uk - the best of the week's international financial media.

Bank results have in the past number of years been boosted by the consumer and house-price booms. Now, however, banks are feeling the pinch as higher interest rates and higher bills push the consumers into deeper water, resulting in an increase in bad debts, says Sean Farrell on Reuters.co.uk. Just ask Barclays who last month warned that its bad debt provisions were busy rising ahead of forecasts, due largely to credit-card arrears.

So the good news for Lloyds is, while it may have warned that it could be facing higher retail banking bad debts, the slight deterioration has been offset by the high credit quality in business banking. Moreover, its loan loss charge, as a percentage of outstanding loans, is very much in line with last year's figures.

So how has Lloyds managed to snag such high credit quality while the other banks continue to suffer? Well, 99% of personal loans went to existing customers last year, says Lex in the FT. These customers provide both stability and growth, and have allowed the bank, under the leadership of Eric Daniels, to seek further expansion. In the "conservative world of Lloyds" this does not mean, - "heaven forbid" that the bank will be making acquisitions, says Lex. It will however return to the cross-selling it did so well in the 1990s: today only about one quarter of its current account holders also have a mortgage or a loan with the bank.

Moreover, its "exceptional dividend" which yields over 7% and takes up 80% of net profits means Lloyds will have to be disciplined on costs; but "any external shock would quickly destroy the delicate balancing act".

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