Lloyds Banking Group (NYSE:LYG) reported statutory profit after tax of £4.8 billion for the first nine months of 2026, as higher net income, controlled costs and stable credit quality supported returns and capital generation.
Chief Financial Officer William Chalmers said the bank remained on track to meet its full-year guidance, while acknowledging that competitive conditions in both lending and deposits could moderate the pace of net interest income growth in 2027.
Income growth and returns
Net income rose 9% year over year to £14.8 billion in the first nine months, including a 2% increase in the third quarter from the preceding quarter. Underlying profit totaled £6.6 billion for the nine-month period and £2.4 billion in the third quarter.
Net interest income increased 10% year over year to £11.1 billion, with third-quarter NII up 3%, aided partly by day-count effects. The net interest margin rose 3 basis points sequentially to 325 basis points.
Chalmers said income from the structural hedge continued to offset pressures from mortgage refinancing and deposit churn. Structural hedge earnings were £1.9 billion during the period, with a 3% average yield, compared with current market refinancing rates that he said were around 4.7%. The bank expects structural hedge income to exceed £7 billion in 2026 and £8 billion in 2027, based on its economic assumptions.
The company reiterated guidance for 2026 NII above £14.9 billion and said it expects to deliver “modestly above” that level. However, Chalmers said the pace of NII growth in 2027 is likely to be lower than in 2026 as competition in lending and deposit markets partly offsets benefits from volume growth and hedge income.
Return on tangible equity was 17.9% for the first nine months and 19.5% in the third quarter. Lloyds continues to expect return on tangible equity above 16% for the full year and said it expects to comfortably exceed that level given its current tangible net asset value.
Lending, deposits and competitive pressures
Group lending balances increased by £4 billion in the third quarter to £495.5 billion, or by £5 billion excluding hedge-accounting movements. Commercial lending rose £3.3 billion, led by broad-based growth in corporate and institutional banking, while retail mortgage balances rose £0.3 billion.
Mortgage completion margins improved slightly from the second quarter to around 75 basis points, though Chalmers said they remained below maturity margins and that the mortgage market remained highly competitive. Lending also grew in cards, personal loans, motor finance and European retail operations.
Deposits increased £1.9 billion in the third quarter and £6.3 billion year to date. Commercial deposits rose £2.1 billion during the quarter, while U.K. retail deposits grew £0.2 billion. Personal current-account balances increased £0.6 billion, more than offsetting a £0.3 billion decline in U.K. savings balances.
Chalmers said Lloyds did not view its loan-to-deposit ratio, which rose to about 99% from roughly 97% at year-end, as a constraint on lending. He said the bank was instead focused on liquidity coverage and on gathering deposits where customer relationships and margins were attractive. Lloyds reported a liquidity coverage ratio of about 143%.
The CFO said deposit market growth has been constrained by cyclical pressures, including inflation and higher rates, as well as structural factors such as quantitative tightening, the reduction of the Term Funding Scheme with additional incentives for SMEs, and competition from non-U.K. lenders. He also said pricing pressure extended beyond mortgages to other asset classes, though the bank continued to see lending opportunities that it viewed as economically attractive.
Costs, other income and credit quality
Operating costs rose 1% year over year to £7.2 billion in the first nine months, while third-quarter costs declined 1% from the second quarter to £2.4 billion. The cost-to-income ratio was 49.3% for the first nine months and 47.2% in the third quarter.
Lloyds maintained its full-year cost targets of operating costs below £9.9 billion and a cost-to-income ratio below 50%. Chalmers said fourth-quarter expenses would rise seasonally because of factors including the bank levy and investment timing.
Other operating income rose 10% year to date to £5 billion and increased 8% year over year in the third quarter to £1.7 billion. Third-quarter income was slightly below the prior quarter due to higher subsidence claims in general insurance, weaker markets income in commercial banking, and the absence of certain second-quarter gains.
Chalmers said performance remained strong in transport, current accounts, Lloyds Living and wealth, while Tusker continued to show momentum. Excluding weather claims, third-quarter underlying other operating income growth exceeded 10% year over year. The bank expects to meet its high-single-digit other income growth objective, plus contributions from Lloyds Wealth.
Credit quality remained stable, with a year-to-date impairment charge of £930 million, equivalent to an asset quality ratio of 25 basis points. Third-quarter impairment was £313 million, including an £8 million management economic scenario charge. The company said arrears and early-warning indicators remained benign and reiterated full-year asset-quality-ratio guidance of around 25 basis points.
Capital and strategy
Lloyds generated 153 basis points of capital in the first nine months, including 45 basis points in the third quarter. Its CET1 ratio stood at 13.3% at quarter-end, and the bank expects to pay down to about 13% by year-end while generating more than 200 basis points of capital for the full year.
Chalmers said Basel 3.1 implementation on Jan. 1, 2027, is expected to produce a £6 billion to £8 billion positive day-one effect on risk-weighted assets and reduce the bank’s Pillar 2A requirement by about 20 basis points, from 1.4% to 1.2%.
The bank is also mobilizing its Accelerate 2030 strategy, having allocated more than 95% of its 2027 strategic investment spending. Chalmers said Lloyds expects to deliver more than £100 million of artificial-intelligence benefits in 2026 and sees technology, automation, property optimization and its technology center in India as contributors to future efficiency gains.
About Lloyds Banking Group (NYSE:LYG)
Lloyds Banking Group plc is a UK-based financial services group whose American depositary shares trade on the New York Stock Exchange under the symbol LYG. The group provides banking, lending, insurance, pensions and investment services to individuals, businesses and institutional customers.
Its principal brands include Lloyds Bank, Halifax, Bank of Scotland and Scottish Widows. Products and services include current and savings accounts, residential mortgages, personal and business loans, credit cards, commercial banking, asset finance, life insurance, pensions and investment solutions.
Lloyds Banking Group was formed in 2009 through the acquisition of HBOS by Lloyds TSB.
