Pre-tax profits exceed expectations, but investor concerns linger over potential motor finance liabilities.

loyds Banking Group has reported stronger-than-expected pre-tax profits of £1.8bn for the third quarter, surpassing analyst forecasts of £1.6bn, though slightly down from £1.9bn in the same period last year.

The bank reaffirmed its outlook for 2024, but investor concerns remain over the potential impact of an ongoing motor finance review by the Financial Conduct Authority (FCA).

While Lloyds has set aside £450m to cover possible redress claims related to mis-sold Personal Contract Purchase (PCP) agreements, no further charges were made in the latest update. The FCA review has focused on motor finance products, including those offered under Lloyds’ Black Horse brand, which could lead to further financial liabilities.

John Moore, senior investment manager at RBC Brewin Dolphin, commented: “The uncertainty around Lloyds’ Black Horse motor finance brand’s potential payouts for mis-sold Personal Contract Purchases and what strategically the bank will do next are the two main issues – the latter may well hinge on the former.”

Lloyds and rival banks such as NatWest have enjoyed robust profits as rising interest rates have boosted returns from lending. However, maintaining those returns is challenging with interest rates expected to decline.

Chief executive Charlie Nunn credited the solid results to income growth, cost control, and strong asset quality. The bank’s lending balances rose by £4.6bn to £457bn, driven by credit card and loan growth, while the mortgage portfolio grew by £3.2bn.

Despite the challenges ahead, Nunn reiterated that Lloyds remains on track with its strategy: “We are making good progress on our strategy and remain on track to deliver higher, more sustainable returns.”