Lloyds Banking Group is returning more than £3.1 billion to shareholders after posting better-than-expected annual profits, underlining the financial firepower of Britain’s largest domestic lender.
The FTSE 100 bank reported full-year pre-tax profits of £6.66 billion, up 12 per cent on 2024 and well above City analysts’ forecast of £6.38 billion. The performance was supported by lower-than-expected provisions for non-performing loans and growing revenue from non-lending activities.
Lloyds announced a final dividend of 2.43 pence per share, up from 2.11 pence a year earlier, representing a cash distribution of £1.43 billion to investors. The bank also announced plans for a share buyback worth up to £1.75 billion, bringing the total return on capital for the year to over £3.1 billion.
The lender said it will now review excess capital distributions every six months in addition to its ordinary dividend, reflecting “increasing confidence in our capital generation”.
Lower impairments contributed to the increase in profits. Non-performing loan charges totaled £795 million, well below the £920 million expected by analysts. Under CEO Charlie Nunn, Lloyds has also pushed to diversify beyond traditional lending, expanding fee-based revenue in areas such as wealth management and insurance.
While underlying net interest income rose 6 per cent to £13.6 billion, non-interest income rose 9 per cent to £6.1 billion, underlining the growing contribution of these newer revenue streams.
The record returns for shareholders are likely to cause a stir given the debate over banks’ capital rules. In December, the Bank of England unveiled plans to ease capital requirements from 2027 for the first time since the 2008 financial crisis, with the aim of boosting lending. Critics warn that banks could instead use the additional leeway to increase payouts.
Lloyds finance director William Chalmers said the dividend and buyback were not due to the central bank’s proposals. “We have not changed our capital standards and have continued to lend on a large scale,” he said.
Management also increased its forecast for the coming year. Lloyds now expects to achieve a return on tangible equity of more than 16 percent in 2026, an increase on its previous target of more than 15 percent. For 2025, the bank reported a return of 12.9 percent, weighed down by an additional £800 million charge related to the mis-selling vehicle finance scandal.
In total, Lloyds has set aside almost £2bn to cover possible compensation costs relating to the affair.
As the largest mortgage lender in Great Britain, Lloyds is considered an important factor for the domestic economy. The bank raised its forecast for Britain’s GDP growth this year to 1.2 percent from 1 percent, but now expects unemployment to rise to 5.2 percent, compared with a previous estimate of 5 percent.
Lloyds also highlighted the growing role of artificial intelligence in its operations. The bank said AI delivered benefits of £50m last year through increased revenue and improved staff productivity. Nunn acknowledged uncertainty over the longer-term impact of AI on jobs, adding: “We don’t know exactly what the impact of this will be in the medium term, but we will be very sensitive to it.”
Shares in Lloyds rose 0.9 per cent to 105½p following the results.
