Lloyds Bank looks to grow wealth management, insurance units as interest rates remain low: FT

By Covey Son · June 29, 2020

Lloyds Bank, the U.K.’s largest retail bank, is planning to make wealth management and insurance a key part of its new strategy as the COVID-19 pandemic and low interest rates put added strains on its lending operations, the Financial Times reported Sunday.

CEO António Horta-Osório is working on a new strategy for the bank this summer that will focus on wealth management and insurance units over its lending business, people familiar with the matter told the newspaper.

The latest news marks a shift in direction for Lloyds, which in its most recent strategic plan emphasized expansion of lending to first-time borrowers and small businesses.

Members of the bank’s board have reportedly raised concerns that Lloyds is too “monoline” in its heavy focus on U.K. retail banking. But executives say the bank has a unique advantage over domestic competitors as it also runs a sizable insurance operation, according to the report.

The Bank of England slashed the country’s benchmark funding rate twice in March, from 0.75% to a record low of 0.1%, in response to the pandemic.

The low interest rate environment in turn diminished U.K. banks’ lending revenue, spurring Lloyds to look outside its banking unit for sources of income that are less affected by monetary policymaking.

Each 0.25% cut corresponds to an estimated £150 million ($185 million) loss in Lloyds Bank’s annual net interest income, according to the report. 

The bank is facing further stress from a £1.31 billion loan impairment charge in the first quarter, which grew from £1.03 billion year-over-year.

The increased impairments drove profits down to just £74 million in the first quarter from £1.6 billion a year earlier. Analysts expected roughly £860 million for the period.

Lloyds Bank’s net interest income dropped 5% in the first quarter to £2.89 billion, compared with £3.05 billion a year earlier. 

Net interest margin was in decline even before the pandemic, inching downward from 2.93% in March 2018 to 2.91% in March 2019.

The bank’s current three-year plan, published in 2018, called for tripling lending to first-time home buyers to £30 billion and net lending to startups, small and medium enterprises and mid-market businesses to £6 billion by 2020. 

The wealth and insurance divisions, two growing parts of Lloyd, made a total of £1.1 billion in underlying profit last year, comprising 15% of the bank’s results. 

The wealth management unit partnered with Schroders in the third quarter of 2019 and launched Schroders Personal Wealth, a financial planning service that the bank is trying to develop into a top-three financial planning business by 2023.

In addition to boosting wealth and insurance revenues, Lloyds hopes to make up for lower lending income by accelerating its acquisition of new digital customers during the pandemic, according to the Financial Times.

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