By Sinead Cruise and Lawrence White
LONDON (Reuters) -Lloyds Banking Group shrugged off fears of a bank tax hike in the UK budget next week, with CFO William Chalmers saying Britain's biggest mortgage lender would play its role in helping the country prosper, "whatever the tax environment".
Chalmers, speaking to reporters following the bank's third-quarter results on Wednesday, said he hoped the government's inaugural fiscal statement would be consistent with its growth ambitions and he looked forward to the "clarity" it would bring.
"It is important to have a competitive, stable tax regime to encourage the type of investment and, indeed the type of lending that we would seek to do to promote the growth agenda," Chalmers said.
"It is our hope that the budget will be a pro-growth event and if that is the case, it should help the mortgage market."
British banks have been on edge since Prime Minister Keir Starmer, who led the left-leaning Labour party to power in July after 14 years of Conservative rule, said the burden of filling a 22 billion pound hole in public finances would need to fall on "broader shoulders".
Banks such as Lloyds (LON:LLOY) and rival NatWest have enjoyed bumper profits as rising interest rates lifted the returns they could make from lending, but now face the challenge of maintaining returns while rates fall.
Lloyds shares - which have soared 31% so far this year - were trading 2% higher at 0818 GMT, above a flat FTSE 100 index..
ROBUST RESULTS
Lloyds reported third-quarter profits that exceeded expectations, and reaffirmed its performance guidance for 2024, citing increasing financial confidence among its customers.
It said it expected house prices to rise by 3.1% this year, compared with a forecast of 1.9% growth at the half-year.
While Britain's growth prospects remain frail, Group Chief Executive Charlie Nunn attributed his bank's robust quarterly performance to income growth, continued cost discipline and strong asset quality.
The bank reported statutory pretax profit for the July-September period of 1.8 billion pounds, a modest fall from the 1.9 billion pounds a year ago but above the average analyst forecast of 1.6 billion pounds.
Its underlying net interest income rose by 2% to 3.2 billion pounds in the third quarter.
Lloyds left its performance guidance for the year unchanged, saying it still expects its net interest margin to be greater than 2.9% in 2024, after the measure of profitability edged up to 2.95% in the third quarter.
"A positive inflection in the net interest margin during Q3 is notable, while credit quality remains very benign," Gary Greenwood, Equity Analyst at Shore Capital said.
The bank also made no further charges relating to a motor finance review by the Financial Conduct Authority, but some investors remain concerned. The bank has already set aside 450 million pounds to cover possible redress claims.
"The uncertainty around Lloyds' Black Horse motor finance brand's potential payouts for mis-sold Personal Contract Purchases and what strategically the bank will do next are the two main issues – the latter may well hinge on the former," John Moore, senior investment manager at RBC Brewin Dolphin (OTC:BDNHF), said.
($1 = 0.7696 pounds)