Lloyds Bank profit dives 95% as it sets aside £1.4bn to cover COVID-19

Lloyds Bank’s (LLOY.L) first quarter profits crashed by 95% and revenue slipped, as the lender braced for the impact of the COVID-19 pandemic on its business.

Lloyds said on Thursday it had set aside £1.4bn ($1.7bn) to cover expected loan losses caused by the coronavirus pandemic’s economic impact. The provisions for losses were far more than analysts had expected and five times what the bank set aside in the same quarter a year ago.

Modelling by the bank’s economists assumes the UK economy will shrink by 5% this year, unemployment spikes to 5.9%, and house prices crash by 5%. The bank expects a mild bounce back in 2021.

“We think we took a prudent view of the different possible scenarios” Lloyds chief executive António Horta-Osório told journalists on a call on Thursday morning.

The hefty loss provision pushed Lloyds to a pre-tax profit of just £74m in the first quarter of 2020 — 95% lower than a year earlier and less than a tenth of what analysts had forecast.

Net revenues at the bank were £3.95bn, slightly below forecasts and down 11% on the prior year. The bank blamed lower interest rates and the competitive banking environment.

Return on tangible equity, a key measure of bank performance, was 5%. Analysts had expected 4.7%.

Shares in the bank fell 6.2% in early trade in London.

Horta-Osório said in a statement: “The coronavirus pandemic presents an unprecedented social and economic challenge which is having a significant impact on people and businesses in the UK and around the world.”

Chief finance officer William Chalmers said mortgage demand dried up at the start of the year as people stopped moving house. Credit card spending and secured lending also declined, while commercial activity increased as companies took actions to prepare for the COVID-19 crisis.

Horta-Osório said Lloyds “core purpose is to help Britain prosper” and was “well placed” to help the UK economy through the crisis.

Lloyds has granted 880,000 repayment holidays on loans and mortgages. The bank has also set up a dedicated phone line for over-70s and is giving priority to NHS workers.

For businesses, Lloyds said it has granted 24,000 capital repayment holidays and 10,000 overdraft extensions, worth £100m. The bank has also lent £500m under the government’s coronavirus business interruption loan scheme (CBIL).

Horta-Osório said banks staff were “going above and beyond in countless and often unseen ways to support the most vulnerable.”

Lloyds has suspended all redundancies for the time being and giving all staff full-pay to help them manage through the crisis.

“The economic outlook is clearly challenging with the longer-term outcome dependent on the severity and length of the pandemic and the mitigating impact of government and other measures in the UK and across the world,” Horta-Osório said.