A new report from Lloyds Banking Group shows that the bank’s profits are finally starting to recover. The company attributes growing revenues to new PPI reforms and higher interest rates.
The bank has been struggling to boost revenues since 2008. While the financial crisis played a key role in its struggles, the bank has also been hindered by a surge in PPI claims.
New data from the Financial Services Authority shows that PPI claims are finally starting to taper. Many banks are posting higher revenues since the PPI crisis is finally starting to wind down. Lloyds was one of the banks that was most adversely affected by the PPI scandal, which means that it is expected to recover more strongly than its competitors.
George Culmer, CFO of Lloyds Banking Group, said that the new trend is encouraging. However, he said that the bank is still facing some challenges that will need to be addressed.
Year-over-year pre-tax profits decreased by 33% in the first quarter. Culmer said that the decline will be temporary. He also pointed out that the overall pre-tax profit isn’t the only variable that analysts should consider. He said that the drop was primarily due to depreciation write-offs for intangible assets. After factoring for amortisation expenses, the bank’s profits actually increased approximately 22%.
Payouts for PPI complaints also played a key role. He is confident that those figures will begin to decline in the coming quarters.
The government also increased profits by selling numerous government securities. Lloyds is expected to increase the sale of these instruments in the coming months, which will help boost profits further.
The FSA has worked closely with the banks to restructure their PPI policies. The new reforms appear to be lowering complaints, which has dropped administrative fees, penalties and other costs associated with paying for them.
It may take at least a year before the FSA or High Street banks realize the full benefit of the new policies. However, they are confident that they will help reduce costs over the long-term.
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