Key Morningstar Metrics for Lloyds Banking Group
- Fair Value Estimate: GBX 78
- Morningstar Rating: ★★★
- Morningstar Economic Moat Rating: Narrow
- Morningstar Uncertainty Rating: Medium
What We Thought of Lloyds Banking Group’s Earnings
Lloyds lifted underlying profitability guidance for 2025 on lower expected loan losses and higher net interest income to return on tangible equity of about 14% from about 13.5% previously. A GBP 800 million provision related to the UK motor finance probe tempered 2025 return expectations slightly.
Why it matters: The Financial Conduct Authority consultation proposal announced on Oct. 7 about the motor finance redress scheme makes more cases eligible than previously modeled by Lloyds, leading to an additional provision charge. The redress scheme is a negative spot on an otherwise good equity story for Lloyds.
- Underlying performance was good with volume growth in mortgages (up GBP 3.1 billion versus the previous quarter) and an expanding net interest margin (up 2 basis points) as the structural hedge tailwind more than offset slightly weaker mortgage and deposit margins.
- Low and stable arrears across products and improvements in economic scenarios modeling keep loan-loss provisions low. In the quarter, provisions of 15 basis points and year-to-date provisions of 18 basis points were positives in the quarter. Guidance was lowered to approximately 20 basis points from 25 basis points.
The bottom line: We maintain our GBX 78 per-share fair value estimate and narrow moat rating. Shares are fairly valued.
- Our view that Lloyds’ strong deposit base in the UK has become a positive differentiator for the UK bank again is unchanged. Current swap rates point toward a prolonged benefit from the structural hedge.
- UK inflation remains elevated, keeping base rates high relative to other European central banks, benefiting net interest margins at the UK banks. Current forecasts of two more cuts in the first half of 2026 are a positive outlook for Lloyds.
