Lloyds profits surge as push to boost smaller business lines pays off

Unlock the Editor’s Digest for free

Roula Khalaf, Editor of the FT, selects her favourite stories in this weekly newsletter.

Lloyds Banking Group’s pre-tax profits increased by 12 per cent to £6.7bn last year, as a rise in lending and income from fee-generating businesses such as insurance helped it weather a fall in interest rates. 

The lender beat analyst expectations of £6.4bn in pre-tax profits for 2025, while revenues rose 7 per cent to £18.3bn.

Shares rose 1.7 per cent in afternoon trading and have soared by 70 per cent over the past 12 months, valuing the company at about £62bn.

The boost was delivered by an increase both in interest income and fee-related income after a diversification push from the chief executive Charlie Nunn. The plan involves generating more fees from areas such as wealth management, insurance and pensions.

Lloyds is in the final phase of a plan launched in 2022 by Nunn to increase the amount of income it gets from sources that are less closely tied to the interest-rate cycle than its traditional lending business.

The UK’s biggest retail bank increased its dividend by 15 per cent to 3.65p per share, equating to a £2.15bn payout, and is buying back shares worth a further £1.75bn.

Lloyds’ bumper shareholder distributions come a month after the Bank of England said it would be cutting the capital requirements for UK lenders.

Finance chief William Chalmers insisted shareholder distributions were not affected by the changes. “The 15 per cent rise to dividend and £1.75bn buyback — none of that is because of the capital review.”

Lloyds set aside £795mn in impairments to deal with bad loans, up from £433mn in 2024. Chalmers said the increase was because 2024’s total benefited from an improved economic outlook that allowed it to reverse previous impairments.

Lloyds is the first UK lender to announce its annual results.

In October the FT reported that Lloyds was assuming full control of Schroders Personal Wealth, its joint venture with the asset manager, as it targets the mass affluent market.

“Other income”, which includes its fees from pensions, insurance and wealth, increased 9 per cent to £6.1bn. Meanwhile, its lending-based “interest income” rose 6 per cent to £13.6bn.

It did not set aside any more funds to cover redress for the motor finance scandal, which has blighted some of its recent results.

In October, Lloyds announced it would take a further £800mn charge after the Financial Conduct Authority set out details of its compensation scheme, hitting pre-tax profits by 36 per cent. Those extra provisions took the total Lloyds has set aside for the scandal to almost £2bn.

The bank reported return on tangible equity (ROTE), a profitability measure that analyses how effectively a company uses its tangible assets to generate profits, of 12.9 per cent. It expects to generate 16 per cent ROTE in 2026.

Lloyds’ net interest margin — another measure of a bank’s profitability that assesses the difference between the interest charged on loans and payouts on customer deposits — rose 11 basis points to 3.06 per cent in 2025.

Lloyds is also investing £4bn in improving its digital operations, while Nunn has become one of FTSE’s leading AI evangelists.

While Morgan Stanley has estimated that 200,000 European banking jobs are under threat over the next five years due to artificial intelligence, Nunn said the company was hiring but added: “We don’t quite know how this will play out in the medium term . . . I don’t have a crystal ball at this stage.”

Benjamin Toms, equity analyst at RBC, said the fourth-quarter results contained “no nasty surprises” and showed continuing momentum. “Lloyds continues to diversify its revenue and keep costs under control, with historic investments yielding efficiency savings, which together should mean that the bank can deliver sustainable returns over the medium term,” he said.