Lloyds bank in the U.K. expects $1.75 billion of loan losses from the pandemic.

Lloyds

Lloyds Banking Group Plc has begun to count the cost of the coronavirus pandemic to the British economy — and warned that the turmoil had made its old targets obsolete.

Britain’s biggest mortgage lender booked a provision of 1.4 billion pounds ($1.75 billion) for possible soured loans as efforts to halt the spread of the virus also crushed economic growth. Lloyds scrapped its previous targets, saying in a statement Thursday that the upheaval of the pandemic meant its guidance was no longer appropriate. Pretax profits in the quarter plunged 95% to 74 million pounds.

“The economic outlook is clearly challenging with the longer-term outcome dependent on the severity and length of the pandemic,” said Chief Executive Officer Antonio Horta-Osorio. Senior staff will not get cash bonuses for the rest of 2020, and the CEO said he has given up any bonus “as a matter of solidarity.”

Record Slump in Retail Sales Is Only the Beginning

Lloyds shares dropped as much as 6.4% in London trading, faring worse than its peers.

The provision comes a day after rival Barclays Plc announced an unexpectedly large 2.1 billion-pound charge to cover soured loans, as banks around the world prepare for more struggling borrowers during lockdown. U.K. regulators have urged banks to be flexible in their accounting to keep credit flowing, as government aid programs support millions of households and businesses.

Lloyds forecast a 7.8% drop in the U.K. economy this year under its worst case scenario, which it used to work out its impairment charge. That contrasts with a plunge of more than 50% that Barclays used as its most pessimistic view, with an 8% decline as its base case.

Horta-Osorio told reporters that the bank was taking a “very prudent view” in its forecasts. Chief Financial Officer William Chalmers said Thursday’s charge is “front-loaded,” and the bank could take further impairments if the economy deteriorates.

Lloyds said 880,000 of its customers had received some relief across all forms of loan, including about 17% of its mortgage borrowers, who can ask for payment holidays that were introduced in March with the backing of the U.K. government.

The bank also said it had approved more than 400 million pounds under the state-supported Coronavirus Business Interruption Loan Scheme — less than rival banks such as Royal Bank of Scotland Group Plc. Horta-Osorio said many firms preferred to take repayment holidays and were wary of increasing their debts.

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