Lloyds banking on higher annual profits for FY 2023

​​​Lloyds banking on higher annual profits for FY 2023

​​Lloyds Banking Group is set to announce higher annual profits for 2023 when it reports full-year results on February 22. According to Reuters Eikon analysts forecast a pretax profit of £7.686 billion, up from £7.448 billion in 2022, boosted by higher net interest income.

​The UK's largest domestic bank has benefited as the Bank of England (BoE) raised interest rates over the past year to curb inflation. This allowed Lloyds and other lenders to charge more on loans while not significantly increasing payouts to savers.

​However, profits are expected to have come under pressure in the fourth quarter (Q4 as the era of rising rates likely ended. Lloyds' key revenue metric, net interest margin, is seen slipping to 3.01% from 3.08% the previous quarter. This indicates it is struggling to maintain profits amid competition to offer customers better savings rates.

​Investors will look for signs of how Lloyds is navigating the economic downturn. Last quarter, it set aside less for bad loans than forecast, reflecting "resilient asset quality." But with the UK economy in a recession and consumers under strain, analysts want evidence this can continue if troubles mount. Any spike in impairments would dent profits.

​Lloyds Banking Group, the UK's largest mortgage lender, savings and insurance provider and commercial bank, is strongly exposed to the UK economy. While domestic focus gives it market dominance, Lloyds' fortunes depend heavily on British consumers avoiding a severe downturn.

​So far, Lloyds has avoided a profit squeeze from rising impairments like some US banks but its ability to continue posting solid profits rests on the resilience of its lending book.

​There will also be scrutiny on Lloyds’ exposure to an FCA investigation into historical car loan mis-selling. While potential compensation payouts are unclear, analysts estimate charges could run into billions. Regulatory issues have proven costly for Lloyds before, such as the PPI scandal.

​Beyond the headline profit figure, Lloyds’ cost control efforts will be in focus. It recently announced plans to cut 1,600 branch jobs to reduce expenses. Continued strict control of outlays will reassure investors on its ability to maintain profits if the economy worsens.

​Lloyds full-year results will offer critical insight into how slowing economic growth, potentially higher impairments, regulatory risk and margin pressure are impacting profits.

​The UK banking behemoth maintains one of the strongest capital positions amongst UK banks and its dividend yield also offers income potential, hence its popularity among investors.

​Its outlook commentary will be vital in determining if the bank’s share price can make up for its year-to-date 10% drop in its share price.

​Technical analysis on the Lloyds share price ahead of Thursday’s full-year results

​The Lloyds’ share price has taken a hit since the beginning of the year but managed to stabilise between its June and September 2023 lows at 41.240p to 40.705p.

​Lloyds Weekly Candlestick Chart

​The Lloyds share price has since heaved itself from its 2 ½ month low at 41.000p to above the 200-week simple moving average (SMA) at 42.780p

​Lloyds Daily Candlestick Chart

​For the Lloyds share price to head back up towards its 48.375p late December high, a rise above the late January high and 200-day SMA at 43.804p to 43.875p would need to occur.

​A fall through the current February low at 41.000p would lead to the October trough at 39.420p being back in play, though.

​Analysts recommendations and IG sentiment

​Fundamental analysts are rating Lloyds as between a ‘buy’ and a ‘hold’ with Refinitiv data showing 3 strong buy, 6 buy, 7 hold, and 2 sells - with the mean of estimates suggesting a long-term price target of 57.57 pence for the share, roughly 42% above the share’s current price (as of 19 February 2024).

​IG sentiment data shows that 97% of clients with open positions on the share (as of 19 February 2024) expect the price to rise over the near term, while only 3% of clients expect the price to fall. Trading activity today shows 57% of buys and this month 51% of sells.