Lloyds, the U.K.'s fifth-biggest bank, said it is set for double digit growth in first-half profit, helped by tight cost controls, flattening bad debt charges, and strong sales of insurance and investment products.
In a trading statement, Lloyds said a combination of cost discipline and robust sales had led to "revenue growth remaining well ahead of cost growth" in the year-to-date.
"As a result, we expect to deliver double digit growth in profit before tax in the first half of 2007, compared to the first half of 2006," the bank said.
In the first half of last year, Lloyds had pretax profit of 1.75 billion pounds ($3.43 billion), an increase of 8% compared with the same period a year earlier. The bank said today it had benefited so far this year from "good levels" of sales of insurance and investment products, offsetting "subdued" demand for unsecured personal lending.
Lloyds also flagged up a "substantial" improvement in its cost:income ratio, crediting a sustained efficiency drive, and reiterated its target of reducing annual expenses by 125 million pounds this year.
The bank, which was hit last year by a jump in bad debt charges as rising interest rates piled pressure on overstretched borrowers, also signalled that measures to stem the increase in defaults were working.
The first-half charge for bad consumer loans would be "broadly flat" compared with the 632 million pounds seen in the same period last year, the bank said, while the total bad debt charge expressed as a percentage of the average loan book would be lower than it was a year ago.
Lloyds, seen as the U.K.'s best-performing bank in the 1990s, currently lags behind rivals HSBC, Royal Bank of Scotland, Barclays, and HBOS, partly because it lacks a strong presence in investment banking and in fast-growing overseas markets.
The group, led by American chief executive Eric Daniels, has been refocusing its business on selling insurance and investment products, betting that rising interest rates and an ageing population will encourage more consumers to save rather than spend.
"The group remains firmly on track to deliver a good trading performance for the first half of 2007 and, as we look to the future, we are increasingly confident in the Group's earnings growth prospects," Eric Daniels said in the statement.
Lloyds also signalled that it will book a pretax profit of 440 million pounds in the second half from last month's disposal of share registration subsidiary Lloyds TSB Registrars.
Lloyds shares closed at 569 pence yesterday, valuing the company at about 32 billion pounds.