(Credit: George Iordanov-Nalbantov)

The Bank of Scotland-owner’s Q1 growth was underpinned by an 8% rise in underlying net interest income to £3.6bn, as the lender continued to benefit from the higher interest rate environment.

The group’s banking net interest margin widened to 3.17%, a 14-basis point increase year-on-year, leading the bank to upgrade its full-year guidance with net interest income now expected to exceed £14.9bn.

Total net income for the period reached £4.8bn, supported by both interest-related gains and an 11% rise in other income driven by increased customer activity and strategic initiatives.

Despite the robust headline figures, the bank adopted a tone of caution regarding the macroeconomic landscape. Lloyds recognised a £151 million impairment charge specifically linked to a deteriorating economic outlook caused by the conflict in the Middle East.

Dan Coatsworth, head of markets at AJ Bell, suggested that while the results “smashed it out of the park” on paper, this geopolitical instability and the resulting risk of bad debts have tempered some of the initial investor enthusiasm. The bank’s total impairment charge for the quarter stood at £295m, though it maintained its full-year asset quality ratio guidance of approximately 25 basis points.  

The group continues to make progress on its strategic pivot under chief executive Charlie Nunn, who said: “We are building strategic momentum during the final year of our current plan, providing innovative ways for our customers to manage their financial needs and achieve their financial aspirations.

“We are confident in our delivery for the year ahead and reiterate our guidance for 2026. We look forward to presenting our new strategy alongside the half-year results.”

Mr Coatsworth explained this means “boosting Lloyds’ footprint in business activities which aren’t as exposed to the interest rate cycle continues, with further expansion in areas like wealth management and insurance”.

The bank saw a 22% rise in underlying other income from its insurance and investment wings following the full acquisition of Schroders Personal Wealth.

The group reported no change to its provisions for the industry-wide motor finance commission probe, though it acknowledged that uncertainties regarding litigation and operational costs remain.

Lloyds remains well-capitalised with a CET1 ratio of 13.4% and has reiterated its target to pay down to a ratio of approximately 13% by the end of the year.

During the quarter, the bank also continued its capital return programme, repurchasing approximately 0.6 billion shares as part of the buyback announced in January. Attention now turns to the half-year results scheduled for July, where the group intends to present its new long-term strategy to investors.