Britain’s borrowers can withstand the impact of the first rise in interest rates in a decade, the chief executive of Lloyds Banking Group said on Wednesday.
António Horta-Osório believes any increase from the current record low of 0.25% would be gradual and said the bank – the biggest mortgage lender and savings institution in the UK – did not expect rates to reach 1% until 2019.
He was speaking as the bank reported a 38% rise in profits in the first nine months of the year, and ahead of next month’s meeting of the Bank’s monetary policy committee. The market expects rates to be increased for the first time since July 2007.
Horta-Osório said a rate rise would not put “stress” on the economy and would merely be an unwinding of the emergency rate cut – from 0.5% – made in the immediate aftermath of the vote for Brexit. Prior to that, rates had been at 0.5% since March 2009.
With inflation running at 3%, real interest rates would remain negative, he said.
“Asset quality remains strong, reflecting our prudent approach to risk, while the UK economy remains resilient,” Horta-Osório said.
The bank is back under private ownership after the government sold off the last of its shares in May, after taking a 43% stake during the height of the 2008 crisis. It is focused on the UK market and has started to expand in the credit card market, buying MBNA last year, giving it a market share of 26%. It has a 25% share of current accounts, 22% of retail deposits and 21% of mortgages.
It is also a player in the motor finance market but Horta-Osório sought to calm concerns about the consumer credit market – car loans, credit cards and personal borrowing – saying the bank took a conservative approach to its lending.
Ratings agency Standard & Poor’s warned on Tuesday that the rise in the UK’s consumer debt to £200bn was unsustainable. The Bank of England will tell lenders next month how much extra capital they need to hold to counter the risk.
The bank did admit it was expecting an increase in its capital requirement but finance director George Culmer said it still expected to pay a dividend for the full year and would consider the use of buy-back or special dividend at the end of the financial year.
Lloyds made profits of £4.5bn in the first nine months of the year, helped by the absence of provisions for payment protection insurance or fines in the third quarter for the first time since the first quarter of 2015.
Claims for PPI, though, are running faster than the bank had expected following an industry-wide advertising campaign featuring The Terminator star, Arnold Schwarzenegger, to raise awareness of the 2019 deadline for making complaints about the mis-sold insurance product.
The bank is yet to use £2.9bn of its £18bn PPI provision – the highest in the industry. It received 16,000 complaints a week after the campaign was launched and although this has fallen back to 11,000 a week it is higher than the 9,000 a week it had forecast.
Impairment charges for bad loans rose 20% to £539m but Culmer said this was not caused by a deterioration in consumers’ ability to repay loans but a “single large corporate” running in to trouble.
