Lloyds TSB sees margins hit

THE Brits are starting to be more careful when it comes to applying for credit, according to Lloyds TSB.

Shares in the banking group came off the boil after it said it had detected a slowdown in UK demand for consumer credit.

The downbeat outlook accompanied an admission that margins in its mortgage and credit card lending business were being eroded.

Dealers marked Lloyds TSB shares down and the stock was 6.75p adrift at 429p in early trading, some way off the year-high of 483p and nearer to the low of 396p.

In a statement to the City ahead of half-year results at the end of next month, group chief executive Eric Daniels insisted that the bank was making good progress as it repositioned for growth.

'We remain well positioned to deliver our planned improved performance in the second half of 2004 and beyond,' he said.

But the bank's outlook for the consumer credit market is at odds with that of rival Royal Bank of Scotland which last week issued a robust view of prospects.

Despite the reported slowdown in demand for consumer credit, Lloyds TSB said group loans and advances to customers were up 9% at the end of March to £137.8bn. Group net interest margin for the first three months of 2004 was 2.97%, compared with 2.92% in the first half of 2003, and 3.03% in the second half of last year.

There was uncertainty in the retail banking operation, where it maintained market share in its core mortgage and credit card lending business at the cost of some margin erosion.

Net new mortgage lending grew in the first quarter of the year to £2.6bn from £2.2bn and balances on current accounts and savings and investment accounts increased by 9% compared to the first quarter of 2003.

Lloyds TSB‘s update highlights the extent to which the Big Four banks are under the cosh in the UK. Although Royal Bank of Scotland‘s trading statement last week was broadly upbeat, HSBC has been feeling the pressure. It announced thousands of job losses as part of a continued cost-cutting exercise.

It is reducing its UK workforce by 3,500 and making further investments in low-cost Asian countries as part of a continued outsourcing operation.

There was no word on the jobs front from Lloyds TSB but analysts said that downward pressure on costs will 'inevitably' mean more job cuts across the sector in the coming months.

Lloyds TSB last month signed a major IT outsourcing contract with IBM in a move designed to introduce new efficiencies into its computer operations. The contract, exclusively predicted by This Is Money, is estimated to be worth almost £1bn over 10 years.