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Lloyds confident on NIM target despite low interest rates


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Lloyds confident on NIM target despite low interest rates

executives said the U.K.'s largest mortgage lender will continue to prioritizemargins over volume in its approach to house lending.

Lloydson April 28 reporteda first-quarter unaudited statutory profit attributable to shareholders of £506million, down from £913 million a year earlier, even as net interest incomerose to £2.76 billion from £2.26 billion. The banking net interest marginincreased to 2.74% from 2.60%, which Lloyds attributed to, among other things,improved deposit pricing and lower wholesale funding costs, as well as a5-basis-point one-off uplift related to the credit card portfolio.

Onan underlying basis, total income was £4.38 billion, down from £4.42 billion inthe first quarter of 2015. Underlying net interest income was up3% to £2.91 billion.

CEOAntónio Horta-Osório said on a conference call that given the prolongedlow-interest-rate environment, "Income is not growing as we thought itwould grow 18 months ago." He added that Lloyds expects continued"slight downward movement" on mortgage prices over the next twoquarters, although deposit costs should also decline.  

Horta-Osórioand CFO George Culmer said the bank's mortgage business was buoyed in the firstquarter by buy-to-let and second-home borrowers, purchases for which the U.K.government introduced a 3% stamp duty levy as of April 1. A commensuratedecline can be expected over the remainder of the year, they added.

Thebank remains cautious over buy-to-let lending, Horta-Osório said, notingregulatory concerns over the segment and saying Lloyds "should set thestandards" in terms of mortgage risk appetite. 

Culmersaid that despite fierce competition, low interest rates and low prospects forgrowth, the bank's margins are not in danger thanks to its ability to managethe balance sheet between subsidiaries and the parent company. Culmeralso noted that more expensive retail deposits were down year over year andcompared to year-end 2015, while cheaper corporate deposits rose over the sametime frames. Lloyds reiterated its 2016 guidance of a net interest marginaround 2.70%.

Respondingto an analyst's suggestion that corporate clients might be delaying investmentuntil after the June 23 referendum on the U.K.'s EU membership, Culmer saidsmall and medium-sized enterprises "continue to trade, and continue to actand transact and draw down," although "as you go further up, I thinksome people are standing off."

Statutoryprofit was hit by a £790 million charge connected to the of enhanced capital notes,high-interest instruments whose elimination the bank says will considerablylower its future costs. It also booked conduct costs of £115 million, althoughthere was no new provision for payment protection insurance.