By Scott Wright

SHARES in Lloyds Banking Group climbed by three and half per cent after the Bank of Scotland owner released nearly £460 million of provisions for bad debts arising from coronavirus, citing the UK’s improved economic outlook, and raised its guidance for the full year.

The bank reported a pre-tax profit of nearly £1.9 billion for the first quarter, ahead of forecasts, in the last results presented by chief executive Antonio Horta-Osorio, who departs this month.

Having made a £74m profit at the same stage last year, the first-quarter results for this year were underpinned by a net impairment credit of £323m, driven by the release of coronavirus bad debt provisions of £459m. The bank said asset quality “remains strong with credit experience benign.”

Lloyds had booked an impairment charge of £1.4bn at the same stage last year as the scale of the pandemic became clearer. The bank’s full-year results for 2020 show that it made a pre-tax profit of £1.3bn, after setting aside £4.2bn in anticipation of bad debts arising from the crisis.

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Mr Horta-Osorio, who is taking over as chairman of Credit Suisse following his 10-year tenure at Lloyds, said the vaccine roll-out and easing of lockdown offered “positive signs”, but warned that the “outlook remains uncertain.”

The Portuguese, who led the bank’s return to private hands in 2017, following its bailout during the financial crisis, added: “The long-run transformation of the Group has positioned the business well to address the challenges of the pandemic. We have made a strong start to the year with the quarterly results and on delivering Strategic Review 2021.”

The bank stated its intention to update the market on interim dividends at the half-year, after it reviews the latest update from the Prudential Regulation Authority on distributions. The PRA ordered banks to suspend pay-outs shortly after the pandemic took hold in 

order to protect banks’ capital positions and ensure they could continue to lend to households and businesses.

Lloyds reiterated its intention to resume a progressive and sustainable ordinary dividend policy, with a dividend at a higher level than 2020.

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Nicholas Hyett, equity analyst at Hargreaves Lansdown, said: “For shareholders, the big question is the dividend. Lloyds has built up a formidable capital position over last year and some of that is going to make its way back to shareholders through a new dividend policy to be announced at the half-year.

“A commitment to a progressive policy means the dividend is likely to be below 2019 levels, meaning the bank will be left with a still substantial capital pile even after resuming payments.

“It’ll be interesting to see what the bank does with that. Share buybacks, a special dividend, aggressive organic growth or even an acquisition are all possibilities.”

The bank reported a 7% fall in net income to £3.7bn for the quarter, with the fall reflecting rock-bottom interest rates.

However, its net interest margin improved by three basis points compared with the fourth quarter of 2020 to 2.49%.

Customer deposits increased by £11.7bn in the quarter to £462.4bn, while loans and advances grew by £3.3bn to £443.5bn. Operating costs were cut by 1% to £1.85bn.

Russ Mould, investment director at AJ Bell, said: “Under the circumstances, outgoing chief executive António Horta-Osório should be very pleased that he is signing off with such a positive update, considering the outcome could have been a lot worse.

“Going forward, Lloyds is suggesting it can earn better returns, further cut costs, and pay higher dividends.

“That message will go down well with the market and go some way to helping to win back investors’ favour after a long period of being a disappointment.”

Shares closed up 3.5%, or 1.53p, at 45.1p.