Lloyds TSB cautious on growth

Lloyds TSB, the UK’s fifth-largest bank, on Friday unveiled an11 per cent rise in pre-tax profit last year but its shares slipped back amid disappointment that it had not raised its dividend, which has been held since 2002.

There was also concern among analysts that cost-cutting was the main reason for the profit rise. Revenue growth at the retail bank remained modest.

Bad debt provisions rose 20 per cent to £1.55bn. But Lloyds said the rate of growth in unsecured lending in 2007 would be “significantly lower” than in 2006.

The bank’s shares closed 3.43 per cent, or 2p, lower at 592p.

Lloyds said the retail bank, being turned round by former Wells Fargo executive Terri Dial, had reported profit up 5 per cent to £1.54bn before provisions.

Eric Daniels, chief executive, called the retail performance “a remarkable achievement”.

It had benefited from increased volumes of bancassurance products and savings, he said.

“In each one of the divisions, all cylinders are clicking and we’re doing things the right way,” he said. “The solid fundamentals are in place and they provide a great platform for growth.”

Revenue growth at the retail bank jumped from 3 per cent in the first half to 6 per cent in the second – bolstered by a 30 per cent jump in sales through branches.

Some analysts pointed to slower growth in mortgage lending. There was disappointment that Lloyds was more cautious on bad debt charges than rival Barclays, which this week said UK bad debts had peaked.

Bad debt provisions rose 20 per cent to £1.55bn, but Lloyds said the rate of growth in unsecured lending in 2007 would be “significantly lower” than in 2006.

Robin Down, banks analyst at HSBC, said there was disappointment that the bank was “not signalling bad debts have peaked”.

Mark Thomas, analyst at Keefe Bruyette and Woods, said Lloyds shares had outperformed the European banking market by 4 per cent over the past month.

In insurance and investments, which includes Scottish Widows, pre-tax profit before strengthening of reserves rose 8 per cent to £973m.

In wholesale and international banking, pre-tax profit rose 8 per cent to £1.64bn. But bad debts continued to rise in the asset finance unit, which provides loans to consumers buying cars from dealerships.

The cost-income ratio im­proved to 50.8 per cent from 52.8 per cent.