Lloyds profits sank below forecasts last year as the lender braces itself for the financial fallout of the motor finance commissions scandal.
The group has set aside an extra £700million for potential compensation relating to motor finance commission arrangements.
RBC Capital has previously estimated that Lloyds could ultimately be on the hook for up to £4.6billion.
Analysts at HSBC estimate that the collective bill for lenders could rival the payment protection insurance saga and reach more than £44billion, but predictions differ.
Lloyds reported a pre-tax profit of £5.97billion for 2024, against £7.5billion the previous year.
Analysts were expecting the group’s annual profit to come in at around £6.39billion. Total income fell 5 per cent to £17.1billion, which was in line with estimates.
Motor finance debacle: Lloyds has set aside an extra £700m for potential compensation relating to motor finance commission arrangements
Lloyds said it recognised remediation costs of £899million in 2024, sharply up from £675million a year ago.
It set aside £700million in relation to the potential impact of the probe into historic mis-selling of motor finance by banks, after setting aside £450million in the previous year.
The bank said it would pay a total dividend of 3.17p per share for 2024, up from 2.76p a year ago, but short of analyst forecasts.
The group also announced a share buyback of £1.7billion, as it continued to pay out excess capital towards its target of a core capital ratio of around 13 per cent by the end of 2026.
Lloyds shares rose 3 per cent or 1.89p to 64.73p on Thursday, having risen over 48 per cent in the last year.
Underlying loans and advances to customers increased by £9.4billion in the year, including £2.1billion in the fourth quarter, to £459.1billion. The increase was led by UK mortgages growth of £6.1billion, the bank said.
Customer deposits of £482.7billion ‘increased significantly’ by £11.3billion in the year, with growth in retail deposits of £11.3billion alongside ‘stable’ commercial banking deposits.
Charlie Nunn, chief executive of Lloyds, said: ‘Pleasingly and as expected, income grew in the second half of the year, supported by a rising banking net interest margin and momentum in other income.
‘We also maintained discipline in costs, whilst asset quality remained strong. This performance enabled total shareholder distributions of £3.6billion.’
He added: ‘Looking forward, we are building momentum as we enhance our franchise and deliver differentiated outcomes for our customers.
‘Our strategy is transforming our capabilities, enabling us to deepen relationships with our customers, grow in high value areas and drive cross-Group collaboration.
‘We are confident of generating more than £1.5billion of additional income from our strategic initiatives by 2026 as we build towards higher, more sustainable returns.’
Richard Hunter, head of markets at Interactive Investor, said: ‘Lloyds finds itself in the midst of attacks from several angles, but all things considered is standing up defiantly to the challenges.’
He added: ‘Overall, a positive direction of travel towards a more streamlined and digital business, underpinned by a healthy financial position, are elements of proof that the bank remains on track.
‘Despite the headwinds, the shares have been positively rerated of late and have added 47 per cent over the last year, as compared to a hike of 13 per cent for the wider FTSE 100.
‘Without doubt, Lloyds remains a longer-term play bolstered in the meantime by the potential for generous shareholder returns.
‘That being said, the motor finance overhang and the higher valuation attached to the recent share price gain leaves the shares up with events, with the market consensus coming in at a hold for now.’
Analysts at Peel Hunt, said: ‘Lloyds is delivering on its financial targets and capital return guidance, in spite of motor finance.
‘Having underperformed peers, we view the 2024 announcement as positive for shares, and intend to refresh our views shortly. For now, we reiterate our Hold rating and 60p TP.’
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