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Lloyds sets aside £1.5bn credit impairment charge

ended 22. February 2023

In its full year accounts for 2022 published this morning, Lloyds has announced it has put aside an underlying impairment charge of £1.5 billion (of which £0.5 billion was in the fourth quarter alone). Free PR platform, Newspage, sought the views of brokers.

5 responses from the Newspage community

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When Lloyds Banking Group does something, you listen. Clearly, they’re expecting defaults to rise along with possible repossessions and they’re preparing for precisely that eventuality. Even though rates have come down, millions of people are due to have rate shock given the numbers that opted for short term 2-year deals in 2021. That, coupled with energy costs and the broader cost of living, is going to be very challenging for many and Lloyds are preparing for it accordingly.

The Lloyds Banking Group is one of the biggest mortgage lenders in the UK so it is prudent to set aside provisions for bad debt. If the economy worsens, defaults on unsecured lending are likely to rise first followed by secured lending. It will be interesting to see what Lloyds and other lenders will do to assist customers facing financial difficulty in the months ahead.

You have to remember that Lloyds Banking Group is one of the UK’s largest lenders, home to brands such as Halifax and Bank of Scotland, as well as the flagship Lloyds brand. So their loan book, including car finance, hire purchase, mortgages, credit cards and personal loans, is vast. So any numbers they quote will always have a lot of 0’s in them. We also have to remember that UK banking is very conservative, particularly post-2008, so it is very likely this reserve could well be a “worst case scenario” figure, we may find that they end up with a surplus to reinvest back into their accounts at a later time in 2023, especially given this month’s surprise news about how well UK plc is actually doing. Any credit defaults are most likely on unsecured debts, such as credit cards and personal loans, more so than mortgages.

This is a huge amount that the UK's biggest lender has set aside for impairment charges, £0.5bn in the 4th quarter alone, all thanks to Kwarteng and Truss, no doubt. I expect other lenders to set aside a significant sum when they publish their financial statements in due course. Whilst the cost of living crisis continues, the number of people falling behind with their credit commitments will increase in 2023 and into 2024.

Gaurav Shukla
CEO at home me
As expected, another leading bank has set aside large funds for impairment charges. This comes on the back of Barclays announcing a similar amount. This won’t be the last bank to do it either. We will, unfortunately, see many people struggle with debt payments, especially mortgages as the payments will have nearly doubled for most people who are remortgaging this year. So sadly, this doesn’t come as a surprise.