Lloyds Banking Group PLC on Wednesday reported a nearly flat profit for 2022, due to credit impairments, but it announced a share buyback programme and a £300 million acquisition by a subsidiary.

The Edinburgh-based bank said net interest income rose 49% to £13.96 billion in 2022 from £9.37 billion in 2021. It noted this was ‘supported by higher interest rates and solid business volumes’. The net interest margin rose to 294 basis points from 254 points and was in line with the company’s prior guidance of above 290 points.

Net income was £18.05 billion, up 14% from £15.76 billion a year ago and beating the company-compiled consensus expectation of £17.74 billion by 1.7%.

Total income, net of insurance claims and changes in contract liabilities, rose 12% to £18.21 billion.

Lloyds said ‘higher net income and lower total costs [were] offset by impairment charges as a result of the revised economic outlook (versus a significant write-back in 2021)’.

Pretax profit was little changed at £6.93 billion, compared to £6.90 billion and 0.3% lower than the market expectation of £6.95 billion. The tax expense however increased by 35% to £1.37 billion from £1.02 billion. This left Lloyds with a post-tax profit of £5.55 billion, down 5.6% from £5.89 billion a year prior.

The common equity tier 1 ratio as at December 31 was 15.1%, down from 17.3% a year prior. The CET1 ratio compares a bank’s capital against its risk assets, with a higher ratio being more financially sound.

Lloyds’s pro forma CET1 ratio as at December 31 was 14.1%, down from 16.3% a year before, but ahead of its target ratio of 12.5% plus a management buffer of around 1%. By the end of 2024, the bank aims to ‘pay down to its target CET1 ratio’.

The bank proposed a final dividend of 1.60 pence, bring the total to 2.40p, in line with market expectations and up 20% from 2.00p in 2021.

Lloyds also announced the launch of a £2.0 billion share buyback, 1.5% higher than the £1.97 billion expected by the company-compiled consensus, but in line with the expectations of analysts at Barclays.

Lloyds’s open mortgage book as at December 31 rose 2.1% to £299.6 billion from £293.3 billion a year prior.

Looking into 2023, Lloyds expects risk-weighted assets to be between £220 billion and £225 billion at the end of 2024, up at least 4.3% from £210.9 billion at the end of 2022.

For 2023 and 2024, the bank anticipates an asset quality ratio of around 30 basis points, compared to 32 basis points in 2022.

It expects a banking net interest margin over 305 basis points, up from 294 points in 2022. Operating costs are set to increase 3.0% to around £9.1 billion from £8.8 billion in 2022.

Further, it expects a return on tangible equity of around 13% in 2023, compared to 13.5% in 2022, for which Lloyds also had guided 13%. Barclays had expected Lloyds to report a 2022 return on equity of 15% to 16%.

Lloyds expects a capital generation of around 175 basis points for 2023 and 2024, compared to 245 basis points on a pro forma basis in 2022.

In 2024, Lloyds expects operating costs at £9.2 billion, aiming for a cost to income ratio of less than 50% by 2026, down from 50.4% in 2022.

However, the bank said the macroeconomic outlook ‘remains uncertain’.

Lloyds also announced that subsidiary Lloyds Bank Asset Finance Ltd bought Hamsard 3352 Ltd, also known as Tusker, for around £300 million. Watford, Hertfordshire-based Tusker runs a vehicle management and leasing business.

Lloyds shares were down 2.4% to 49.74 pence each on Wednesday morning in London.

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