Lloyds annual profits surge despite hit from mis-sold car finance
The jump in annual profits comes despite significant ‘remediation costs’ totalling £968 million
Lloyds Banking Group has reported a stronger-than-anticipated annual profit, even as it set aside substantial funds for motor finance compensation.
The high street lender saw pre-tax profits climb 12% to £6.66 billion in 2025, an increase from £5.97 billion the previous year, prompting an improved outlook for its key performance metrics in 2026.
This robust financial performance comes despite significant "remediation costs" totalling £968 million. A substantial £800 million of this was allocated in the third quarter to compensate customers affected by mis-sold car loans, pushing the group's total bill for this issue to £1.95 billion.
The annual profit surge was bolstered by a strong final quarter of 2025, where profits more than doubled to an impressive £1.98 billion, surpassing forecasts and significantly up from £824 million a year prior.
Lloyds said it now expects underlying net interest income of around £14.9 billion for 2026, up from £13.6 billion in 2025.
The lender revealed underlying bad debt charges almost doubled last year to £795 million, up from £433 million in 2024 – though it said the total remained low and reflected a “strong and stable credit performance”.
Chief executive Charlie Nunn said: “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.”
“Looking ahead to 2026 and the culmination of the five-year strategy we set out in 2022, our continued business momentum and strategic delivery enable us to upgrade guidance,” he added.
The group said it would increase returns for shareholders, with plans for up to another £1.75 billion in share buybacks, on top of a 15% increase in the dividend for 2025.
It also revealed it would share out a £405 million share bonus pool among workers, up 10% on 2024, “reflecting financial performance and delivery against the strategy”.
Lloyds slightly upgraded its outlook for the wider economy in 2026, saying it now expects the gross domestic product to rise by 1.2% over the year and is forecasting house price growth to pick up to 1.6%, boosted by an expected two interest rate cuts this year.
But it also predicts unemployment to pick up to 5.3% in the first half of the year.
Mr Nunn said the group was doubling down on investment in generative artificial intelligence (AI), which he said had directly provided a £50 million profit boost last year.
He said rather than cutting jobs in response to the AI rollout, the firm was looking to reskill its 64,0000 workers, though he admitted the group would “reduce some jobs in some areas” amid the digital push.
On motor finance, the group said it is expecting the results of the Financial Conduct Authority (FCA) consultation into its proposed compensation scheme in March.
Under the current proposals, about 14 million car finance deals could be eligible for compensation, with people estimated to get an average of £700 per agreement.
But the regulator’s plans have been met with significant pushback from lenders.
Mr Nunn said Lloyds has set out suggestions for reform of the scheme, including linking it more closely to harm suffered by consumers, adding “we didn’t think the way the compensation was set out was the right way to go about it”.
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