Lloyds reports Q3 profit slide on bad loan charges

© Reuters. FILE PHOTO: Customers use ATMs at a branch of Lloyds Bank in London, Britain, February 21, 2017. REUTERS/Toby Melville

LONDON (Reuters) -Lloyds Banking Group reported a slide in quarterly profits on Thursday, as the lender braced for a potential rise in loan defaults as inflation squeezes borrowers.

Britain’s biggest mortgage lender posted pre-tax profit of 1.5 billion pounds ($1.74 billion) for July-September, below the 1.8 billion pounds average of analyst forecasts compiled by the bank and down on 2 billion pounds the prior year.

Lloyds (LON:)’ results were dented by a 668 million pound provision taken in the quarter to cover potentially soured loans, which it said reflected the deteriorating outlook.

“The current environment is concerning for many people and we are committed to maintaining support for our customers,” said Lloyds CEO Charlie Nunn.

Britain’s new prime minister Rishi Sunak has said the country faces a “profound economic crisis” as he seeks to fix the mistakes made by predecessor Liz Truss during her disastrous tenure.

Market turmoil sparked by Truss’ tax-cutting plans pushed up the country’s borrowing costs and led lenders to ratchet up mortgage rates, piling further pressure on households.

Rivals including Barclays (LON:) and HSBC (LON:) have reported robust results this week, but investors are wary the deepening cost of living crisis will hurt consumers and businesses and damage bank finances in the longer term.

Despite the slide in profit, Lloyds said the strength of its underlying performance meant it could raise its forecast on several performance metrics for the year.

Net interest margin, which measures how much the bank makes on the spread between what it pays savers and charges borrowers, will be 290 basis points rather than 280, it said, and the bank will generate more capital.

However, it said Lloyds’ asset quality – measuring potential loan defaults – had slightly worsened.

($1 = 0.8604 pounds)