Profits at Lloyds Banking Group collapsed in the first quarter, crashing 95% after the bank was forced to take a £1.4bn charge to cover a surge in bad debts linked to the Covid-19 outbreak.
The first-quarter provision is meant to cover potential defaults by customers over the coming months, as they struggle to keep up with payments due to the UKs nationwide lockdown.
Lloyds is the UKs largest provider of home loans, one of its biggest backers of businesses and is often viewed as a bellwether for the British economy. The front-loaded costs nearly wiped out pre-tax profits, which collapsed year-on-year from £1.6bn to just £74m for the three-month period to March. Lloyds was expected to set aside around £1.1bn worth of impairments, according to analysts, who had forecast profits of about £860m.
The bank said it was expecting to put aside more money to cover bad loans in the second quarter, but said it was difficult to forecast given the “significant uncertainty.”
Lloyds chief executive António Horta-Osório said: “The coronavirus pandemic presents an unprecedented social and economic challenge which is having a significant impact on people and businesses in the UK and around the world.
“The economic outlook is clearly challenging with the longer-term outcome dependent on the severity and length of the pandemic and the mitigating impact of Government and other measures in the UK and across the world.
“Throughout this period of uncertainty we will continue to work closely with government, regulators and other authorities and use the strength of our balance sheet and business model to ensure that we play our part in supporting our customers and the UK economy.”
Lloyds is the latest lender to lay bare the likely costs of the pandemic. On Wednesday, Barclays reported a 38% drop in pre-tax profits to £913m after taking a £2.1bn charge to cover bad debts, which it predicts could soar to £4.5bn by the end of the year. Earlier this week, HSBC warned it could end up setting aside $11bn (£8.8bn) to cover loan losses for 2020, after the pandemic hit its main markets across Asia and Europe.