Sir Brian Pitman, the Lloyds chairman, said that a combination of favourable interest rate trends and a better mix of business helped the bank fend off ferocious competition in the savings and mortgage market.
While income rose by 21 per cent to pounds 3.9bn, reflecting buoyant economics conditions and higher sales right across the board, costs fell 2 per cent in absolute terms. Margins also improved by seven basis points to 3.87 per cent.
Lloyds' strong figures, which come after a week of lacklustre numbers from the mortgage banks, appear to vindicate the stock market's preference for the more broadly based clearing banks. Lloyds' shares rose strongly yesterday, helping lift the market as a whole from yesterday's doldrums. The five mortgage banks all saw their shares fall after their results.
The Lloyds figures are followed next week by those of its chief competitors HSBC, Barclays and NatWest.
The one black spot was loan loss provisions, which were 18 per cent higher at pounds 315m, reflecting higher defaults on personal business.
Sir Brian said that the group was still well placed to make further acquisitions, even after announcing plans to take over Scottish Widows last month - although to do a major deal now, the bank would have to use its shares. "I believe there will be further consolidation in the industry as competition intensifies. We intend to be part of that consolidation," he said.
He highlighted the mortgage banks as the most likely area for consolidation. "The weak players will consolidate and these are the mortgage banks," he said.
In a sideswipe at Don Cruickshank, the chairman of the Government's banking review, Sir Brian pointed out that mortgage rates were now at their lowest for 30 years. He said in the mortgage market as a whole, product margins have come down considerably since Lloyds took over C&G and were now lower than in France, Germany or the US. "There was a time when banking was about taking deposits from the public and then handing them back safely. Now the issue for bankers is how to cope with a climate of ferocious competition."