Lloyds Banking Group Q1 2025: Unraveling Contradictions in Mortgage Spreads, Income Growth, and Capital Strategies

Mortgage spreads and competition, other operating income growth, motor finance provision estimate, share buyback and capital target reduction are the key contradictions discussed in Lloyds Banking Group's latest 2025Q1 earnings call.



Financial Performance and Income Growth:
- Lloyds Banking Group demonstrated sustained strength in its financial performance, with net income of £4.4 billion in Q1 2025, up 4% compared to the previous year. The group saw a net interest margin of 3.03%, up 6 basis points quarter-on-quarter.
- This growth was driven by continued growth in both net interest income and other operating income, as well as a stable asset quality ratio.

Lending and Deposit Growth:
- Group lending balances reached £466.2 billion, up 2% in Q1, with a strong contribution from mortgages, up £4.8 billion.
- Deposits grew by £5 billion, with retail deposits up 2.7 billion and commercial deposits up 2.3 billion. Savings accounts increased by £1.5 billion and current accounts by £1.2 billion.
- This growth in lending and deposits was supported by customer demand and government initiatives.

Operating Cost and Cost Discipline:
- Operating costs were £2.6 billion, up 6% year-on-year, including a planned increase in severance costs.
- Despite this, costs excluding severance were up 3%, largely due to investment and business growth, and the cost-to-income ratio was 58.1%.
- Lloyds maintained a focus on cost discipline and efficiency savings to offset these increases.

Asset Quality and Provisions:
- The Q1 impairment charge was £309 million, equivalent to an asset quality ratio of 27 basis points.
- The group maintained a stable underlying asset quality, with early warning indicators remaining low, and mortgage arrears improving.
- The slight adjustment in impairment provisions reflects an uncertain macroeconomic outlook and increased tariff impacts.