There was some respite for Lloyds Banking (LLOY) during the third quarter, with the banking giant avoiding any further provisions for payment protection insurance (PPI). However, it still faced challenges elsewhere. The Prudential Regulation Authority decided to increase its Pillar 2A capital requirements – financial buffers determined by a lender’s idiosyncratic risks – during the period. This meant the banking group suffered some upward pressure on its targeted 13 per cent common equity tier one (CET1) ratio – calculated as the proportion of equity held above its risk-weighted assets.
The good news was that management upgraded its capital generation expectations to between 225 and 240 basis points for the full year. This is above the range of 170 and 200 basis points initially flagged. Management reckons this will offset the increased regulatory requirements.
There were other bright spots during the period. Underlying pre-tax profit was up 9 per cent year on year to £2.1bn, thanks to higher net interest income and a reduction in wholesale funding costs. This represented a 1 per cent beat to consensus expectations for profits. Crucially for the maintenance of the bank’s progressive dividend policy, its CET1 ratio improved to 14.1 per cent, from 13.5 per cent year on year.
