Lloyds Banking Upgrades Guidance on Strong 2025 Performance, Sharesd Edge Higher

Lloyds Banking Group (LON: LLOY) has announced a robust set of full-year results for 2025, exceeding expectations and prompting an upgrade to its 2026 guidance. The bank's strong financial performance allows for total shareholder distributions of approximately £3.9 billion for the year.

The LLOY share price rose around 0.5% following the report.

Statutory profit before tax reached £6.7 billion, a 12% increase compared to £6.0 billion in 2024. This growth was supported by higher total income, which was partially offset by increased operating expenses and a higher impairment charge. Underlying net interest income rose by 6% to £13.6 billion, driven by a banking net interest margin of 3.06%, up 11 basis points year-on-year, and higher average interest-earning banking assets of £462.9 billion.

Underlying other income also saw a significant increase, rising 9% to £6.1 billion, fueled by stronger customer activity and the positive impact of strategic initiatives. Operating costs increased by 3% to £9.8 billion, reflecting strategic investments, business growth expenses, and inflationary pressures, which were partially mitigated by cost-saving measures. The underlying impairment charge was £795 million, reflecting a stable credit performance and an asset quality ratio of 17 basis points.

The customer franchise experienced growth, with underlying loans and advances to customers increasing by £22.0 billion (5%) to £481.1 billion. Customer deposits also rose by £13.8 billion (3%) to £496.5 billion. Strong capital generation of 147 basis points contributed to a pro forma CET1 ratio of 13.2%, even after accounting for an increased ordinary dividend and an announced share buyback.

Shareholder Value Boost

The Board has recommended a final ordinary dividend of 2.43 pence per share, bringing the total ordinary dividend for 2025 to 3.65 pence per share, a 15% increase from the previous year. Moreover, an ordinary share buyback program of up to £1.75 billion has been announced, signaling the bank's commitment to returning excess capital to shareholders. The group will now review excess capital distributions in addition to the ordinary dividend every half year.

2026 Guidance Upgrade

Based on the sustained financial performance, Lloyds has upgraded its guidance for 2026. The Group now expects:

• Underlying net interest income of approximately £14.9 billion
• A cost-to-income ratio of less than 50% (including operating costs of less than £9.9 billion)
• An asset quality ratio of approximately 25 basis points
• Return on tangible equity now of greater than 16%
• Capital generation of greater than 200 basis points
• To pay down to a CET1 ratio of approximately 13.0%

Driver Breakdown

• Strategic Initiatives: Delivered £1.4 billion of annualised additional revenues from strategic initiatives in 2025; now confident in delivering c.£2 billion by the end of 2026 (ahead of previous target of c.£1.5 billion).
• Cost Efficiency: Enhanced operating leverage through transforming delivery capabilities and capitalising on scale, driving gross cost savings of £1.9 billion since 2021.
• Digital Transformation: Progress in digital capabilities to innovate at scale and reinforce competitive strength, driving revenue and efficiency opportunities, focused on extending leadership position across new and emerging technologies including Generative AI (Gen AI) and digital assets.

CEO Charlie Nunn stated, “The Group demonstrated sustained strength in financial performance in 2025, including in the final quarter, with continued balance sheet and income growth, as well as strong cost discipline and credit performance,” reinforcing the company's strategic focus.