Britain’s Lloyds Banking Group on Wednesday logged a drop in net profit last year as a large charge to cover loan defaults offset the impact of rising interest rates.
Profit after tax slid six percent to £5.0 billion ($6.0 billion) last year from 2021, Lloyds said in a statement.
The lender set aside £1.5 billion in provisions for borrowers defaulting on loans amid a cost-of-living crisis that was sparked by rampant inflation.
That was not as severe as the £4.2 billion bad debt charge it took in 2020 during the Covid crisis, although £1.4 billion of this was reversed in 2021 as the economy emerged from the pandemic.
Total income, net of accounting effects linked to insurance contracts, rose 12 percent to £18.2 billion last year as the sector benefitted from a series of interest rate hikes.
“While the operating environment has changed significantly over the last year, the group has delivered a robust financial performance with strong income growth, continued franchise strength and strong capital generation, enabling increased capital returns for shareholders,” chief executive Charlie Nunn said.
“We know that the current environment continues to be challenging for many people and have mobilised the organisation to further support our customers.
“We remain committed to… helping the country recover from the current economic uncertainties,” he added.
Lloyds saw a small increase in customer defaults in the fourth quarter, but said credit performance was generally strong despite soaring living costs fuelled by rocketing energy bills.
Europe’s banking sector has reported bumper earnings after central banks worldwide hiked interest rates in efforts to bring inflation under control.
Retail banks in turn have raised rates on loans, including mortgages, which has lifted income.
At the same time, however, that has fuelled fears that customers will struggle to keep up with higher repayments as annual inflation in Britain remains above 10 percent.
The Bank of England has lifted its key rate from a record low of 0.1 percent in December 2021 to the current level of 4.0 percent in a bid to bring down elevated consumer prices.